Where there’s a problem, there’s a solution. Cash flow problems are no exception.

We’ve compiled a list of quick and easy ways to solve your cash flow issues.

Get paid on time

A large proportion of cash flow issues can be solved by getting paid on time. Late payments are the reason that 1 in 5 businesses suffer from cash flow issues.

Chasing debtors and tracking invoices can be time-consuming but there are apps out there that can automate the process for you, saving you time and money.

• Shorten your payment terms

Research carried out by the Wow Company found that shortening payment terms meant an average decrease in the time it takes to get paid.

On average, reducing your payment terms to 7 days gets you paid within 17. Whilst, payment terms of 30 days get you paid in 35.

• Split your bills

For most small businesses, paying off a large lump sum at the end of the month can wreak havoc upon their financial systems.

By requiring your clients to pay you in increments – maybe half upfront, and half after the delivery of the service – you will help with their cash flow and encourage faster payment.

• Request deposits

Additionally, requiring a deposit can often go some way to improving your cash flow.

If you receive a deposit before providing your product or service you will always have some initial working capital to get the job done.

Manage which bills you pay

A better understanding of time-sensitive bills can allow you to make strategic decisions as to which bills you pay in which order. If you know that a certain bill needs to be paid before you get charged interest or late fees then it makes sense to pay it off early.

Equally, there’s less pressure to pay off a bill that isn’t time-dependent. Understanding which bills to pay and when can be a step towards solving your cash flow problems.

Apply for finance

The biggest mistake that small businesses can make is to apply for finance only when they need it. Though this seems logical, it’s actually more sensible to apply for finance before you need it.

Understanding what your loan options are and how much you need means that you can have money in place to cover a cash gap before it happens.

And applying for loans early can mean that you get the best rates, from the best provider.

How to predict cash flow problems

Knowing what to do to help prevent cash flow problems is one thing, but predicting them is quite another.

Because crystal balls aren’t all that available (or reliable) here are some other ways to keep an eye on the future of your finances:

Cloud accounting software

Cloud accounting is no longer the new kid on the block. In fact, recent research into small businesses by Xero found that between March of 2017 and March of 2018 there had been a 46.8% increase in the adoption of cloud accounting software.

Time-saving and cost-effective, cloud software keeps all of your books in one place. And having access to all of your most important documents anytime, anywhere, is invaluable to keeping on top of your finances. You can read more about the kickass benefits of the cloud here.

Create a budget

Creating a budget can help you to understand the pattern of your cash. This can be done in a spreadsheet, and is most typically done in software like Excel.

Committing numbers to paper, or a computer screen, means that you’re more likely to stick to them. And sticking to your budgets is essential to maintaining a healthy cash flow.

If done habitually, your budgeting will become more accurate. And accurate budgets mean that you can begin to strategise more effectively.

Create a cash flow forecast

In order to understand where cash flow problems arise you need a roadmap for your cash. A cash flow forecast can provide you with exactly that.

Unlike a P&L budget, a cash flow forecast does not show you profitability. Profitable businesses can still have cash flow issues.

Traditionally, cash flow forecasts were created in spreadsheets. But now there are cloud-based software solutions that can help to create your forecast and keep it up to date. This can save you time and energy that you can use to focus on your business.

On average, Float can save you eight hours a month in time that would be otherwise spent manually inputting data into spreadsheets. Float populates your forecast with bills and invoices pulled through from your accounting software. Filling up your cash budgets with actuals allows you to see the reality of your cash.

Insight into your current and future cash position can allow you to better plan for impending cash flow problems.

The Best…

Retainer Businesses

A business that keeps its clients on retainer will have relatively stable cash flow in comparison to project-based businesses. Retainer contracts are often mutually beneficial to businesses and their clients. Whilst a business gains consistent work and revenue, a client has the certainty of investment when it comes to their own cash flow.

A retainer contract means peace of mind when it comes to working capital to cover your financial obligations. It also means that your cash flow is more manageable.

Most service businesses tend to work with a mixture of retained clients and with project work (more on that later). But it’s safe to say that keeping your clients on retainer is the best for cash flow.

SaaS companies

Companies that offer Software as a Service are some of the largest and most globally recognisable businesses and appear most frequently on lists such as the Fortune 500, and the Forbes Top 25. But bear in mind that these lists are measured on profitability, rather than cash flow.

With the founders of certain tech companies the subject of Oscar-nominated movies it’s fair to say the tech business is synonymous with success.

With internet-based delivery models, companies that deliver Software as a Service tend to incur less expenditure on raw materials than other business sectors. Fewer overheads, a low barrier to entry, and more opportunities to grow mean that tech companies tend to have good cash flow.

Okay for Cash Flow:

Agencies

An agency is a business that provides a service on behalf of another business, or person. Whether you outsource support or materials, chances are your company can function with fewer overheads.

Fewer overheads mean spending less money upfront – which is good for cash flow – but agencies are often project-based. An intermittent inflow of cash may mean that your cash flow contains more troughs and peaks than a typical business.

Creative agencies are having to pay more attention to payment infrastructure to help with their cash flow. Reducing payment terms, turning to direct debit, and requesting half payment upfront in order to get paid faster are all ways in which agencies are getting paid faster.

Additionally, investment in a functional, and scalable tech stack provides cash flow solutions for agencies. Integrating multiple apps, networking on social media, and running a business remotely, can help with the lumpy cash flow that comes with project work.

Franchises

Franchise businesses have an advantage over other businesses in that they, particularly if they’re an offshoot of a recognised brand, already have a reputation. Owning a franchise can mean combining your business acumen with the (hopefully) positive reputation of whatever company you’ve taken on.

A franchisor’s brand is its most valuable asset. But with a high initial investment, it’s still a risk to get involved in a franchise. However, an entrepreneur opening a new franchise inherits an established business model which can mean a head start in terms of the business working.

And the worst…

Restaurant industry

Your loyal customer base might think that your gastronomic experiments pay for themselves but it’s more likely that deliciousness comes at a price. It turns out that you can buy taste after all.

In fact, the number of restaurants that went bust in 2017 increased by a fifth. With nearly 1,000 insolvencies in 2017, compared to 825 in 2016, the plight of the UK restaurant business is being blamed on expensive overheads and increasing market competition. If the naked chef can’t stand the heat then the restaurant business is certainly not cushty for cash flow.

Unlike the flash-in-the-pan trends of quinoa or kale, delivery services seem to be causing a bit of a stir amongst restaurateurs. The restaurant business seems plagued with hurdles to overcome in order to run, and maintain, a healthy cash flow.

Seasonal Businesses

Seasonal business cash inflows and outgoings fluctuate throughout the year. Inconsistent incomings are the main reason that seasonal businesses are some of the worst for cash flow.

There are many reasons why your business may be seasonal. You may sell Christmas trees, gazebos, even swimming pools. Whatever the reason is, with temperamental cash flow you’ll need to factor that into your business management strategy.

Cash flow, as we discovered in a recent case study, needs to be monitored closely in order to survive the deluges and droughts that come with seasonal business. With inconsistent takings, it is essential for a seasonal business to keep track of its cash.

Property Developers

Property developers need to make a large initial investment and there can be a lengthy wait to see the returns. However, after the initial payout and the following hard work you’re left with a large sum of money to start the cycle all over again.

By definition, the property business is capital-dependent and cash flow poor, particularly for business owners that have no additional income. This is why, until they’re flush with cash, property developers tend to work two jobs in order to keep their development job afloat.

Cash flow for property developers is a game of cat and mouse. With times of cash droughts and alternate times of capital saturation, cash flow can be hard to keep on track.

In conclusion…

Ultimately, any business can fail. But monitoring your cash flow can be a definitive means of preventing business insolvency. With intuitive and visual cash flow forecasting provided by Float, you can make money troubles a thing of the past.

Sign up for a free trial with Float today!

Or, to find out how Float can help your business become a cash flow champion, sign up for one of our free webinars!

There has been a lot of chatter in the media recently that another economic downturn might be around the corner. As The Wow Company found in their recent “How recession-proof is your business” survey, a surprisingly high number of UK-based businesses are not prepared for the next recession.

If the next recession is coming, many businesses are in a precarious position. Peter Czapp, cofounder of The Wow Company, explains: “Many owners are just one bit of bad news away from going out of business completely”. In fact, 15% of business owners in the recent survey admitted that they only have enough cash to cover one month of overheads should anything go awry.

Ways to prepare yourself for the next recession

There are several key steps you can take to put your firm in a better position to face the next financial crisis, should there be a recession in 2018.

Move your clients to direct debit

Surprisingly, a strong majority of small businesses in the UK still rely on cheques and bank transfers to get paid. Only 27% of respondents use more reliable direct debits to get paid for their work.

We’d recommend using a direct debit tool such as Gocardless to automatically take payments, meaning there’s no chance of getting paid late. Gocardless helps businesses get paid on average 20 days quicker than other methods.

Tools like Gocardless can be especially useful for recurring payments. Taking direct debits can improve cash flow, and requires little to no admin time to set up.

Shorten your payment terms

The good news is that SMEs are getting paid faster than ever before. On average, businesses are now getting paid in 27 days.

However, you can reduce this delay further. The Wow Company’s report found that businesses with 7 day payment terms get paid in 17 days on average, while those with 30 day payment terms tend to get paid in 35 days.

Reducing your payment terms is a solid first step to collecting cash more quickly, helping you fill cash flow gaps and stay in the black. You may worry that this could upset existing clients – don’t. They’ll understand if you explain the reasoning.

Be upfront with your clients when agreeing fees. Set out your payment terms and ask them if they intend to pay you on time. A simple handshake could get you paid much faster.

For clients who are still paying through bank transfer or cheque, you’ll need an invoice chasing process in place. If you don’t automate this, it’s likely to take a heck of a lot of admin time. If you’d like to streamline this process, we’d recommend looking into an app like Chaser for Xero.

Monitor and forecast your cash flow

What really rings alarm bells with a potential economic recession on its way is the lack of insight the respondents have into their cash.

22% of respondents don’t have a cash flow forecast, and half of those don’t feel they need one.

65% of small businesses have cash reserves of 3 months or less – putting them in a precarious position if they lose even one client.

More worryingly, 15% of business owners are living on the edge of delving into their personal finances to stay afloat. These businesses are in a very precarious position if the next recession is on its way.

The first step towards resolving these issues is creating and maintaining a cash flow forecast. This used to be an extremely time consuming and manual task, but now it can be incredibly easy to do with cloud-based tools such as Float. Float integrates with accounting software providers including Xero, QuickBooks and FreeAgent to automatically import open and paid invoices and bills to track your progress.

Float uses the direct method of cash flow forecasting to show you your current and future cash position in real terms.

Consider alternative finance

The Wow Company found that 53% of SMEs are using some sort of external finance. 28% of business owners were forced to use personal funds to tide their business over in the past 12 months.

If your go-to source of cash injection is a bank loan, think again. There are many alternative finance options available to businesses including invoice financing, peer to peer lending, and even crowdfunding. Providers such as Market Invoice, ShareIn, and Lending Crowd are changing this space.

Alternative finance is any type of funding not provided by a traditional institution such as a high street bank. Traditional finance can work for many businesses, but banks often have criteria that smaller businesses can’t meet, causing them to look for other options.

Alternative finance is about securing finance directly, without requiring a large institution to serve as a broker. If the next recession is on the horizon, alternative finance could be a lifeline.

Diversify your client portfolio and measure satisfaction

If one client makes up 30% or more of your revenue, this poses a significant risk to your business. Of course it’s hard, but looking for smaller projects from smaller players can help you shift some of your eggs from that one rather precarious basket.

To reduce your risk of losing a crucial client, it’s important to track their customer satisfaction. Surprisingly, 67% of survey respondents don’t track customer satisfaction at all. If you don’t know how your customers feel about your service or product, you might be left blindsided when an unhappy client leaves you. Especially if they’re essential to your monthly revenue.

A really simple way to track customer satisfaction is through measuring your Net Promoter Score (NPS) at least twice a year. NPS is a globally recognised indicator of customer happiness that asks one simple question – “On a scale of 1-10, how likely are you to recommend [company] to a friend or colleague?”

An answer of 6 or below detracts from your score, a 7 or 8 doesn’t affect your score, and answers of 9 or 10 will increase your score.

You’ll be able to benchmark your NPS compared to well known brands, and get feedback from customers about how to improve.

Move to a recurring revenue model

If you work on a project by project basis, you’ll know how hard it can be to continuously generate enough revenue to sustain your business and pay the bills. It can mean you have to routinely lay staff off after a big project, which can lead to a volatile employee culture. And if the next recession is around the corner, you could be one fallen-through project from disaster.

The priority should be “transitioning one-off engagements into client relationships which produce recurring revenue. This immediately has positive knock-on effects elsewhere in the business: it smoothes out the feast-or-famine cash flow cycle endemic to consulting, allowing you to invest confidently in things which grow the business, like onboarding new employees or moving your practice into more lucrative directions,” says Patrick McKenzie, entrepreneur and Principal at Kalzumeus Software.

Setting up recurring revenue plans can increase customer loyalty, and bring stability to your business. It will help you recruit and keep good people, and confidently plan for the future.