With less than two months to go until the UK is due to leave the European Union, there are still plenty of unknowns. And small business owners have got a pretty good idea of how any sort of uncertainty can impact business, particularly when it comes to cash flow.
Strong cash flow management is a key indicator of business health. We know that 65% of small businesses fail because their finances aren’t up-to-scratch.
Our MD, Gary Turner recently appeared on Nick Ferrari’s Breakfast Show on LBC Radio where he reinforced how it’s never been more important to get your finances in order.
Regardless of what the outcome is, it’s worth thinking about the steps you can take to safeguard your business. To help, in the first of a series of articles, we’ve outlined five ways you can future-proof the cash flow of your business.
Here’s the thing about pitfalls: they’re very easy to avoid if you’re looking for them. Visibility is key to maintaining cash flow, and SMBs don’t always have an up to date overview of their business financials.
Look for ways to boost overall transparency. Organise a system for tracking and maintaining receipts that could otherwise get lost; make sure all transactions are appropriately documented – including all offers, deals, and promotions across the financial year.
Use better tools
The problem with financial management is often not the complicated stuff. These are things that take time, thought, and strategic intelligence, and if you have that in-house, you can handle it. The problem is often the simplest stuff takes a lot of time and is subject to human error.
Spreadsheets are an excellent example of this: they can easily pile up – to the point where simply finding what you’re looking for can be difficult – and manually entering figures is a laborious process that leads to mistakes and gaps in your data. It’s also not long before it’s out-of-date, meaning you’ll never get full visibility into cash flow health.
Automate cash flow processes, wherever possible. Whether it’s expense or invoice management, let technology handle it: Xero accounting software can do what your finance team doesn’t – and it’s less prone to mistakes, in any case.
Minimise human error
Speaking of mistakes, avoidable human errors can have a terrible effect on cash flow – and up to 90% of spreadsheets contain these errors. Obvious mistakes can take time to correct, and smaller mistakes can be missed entirely: ruining the accuracy of your figures and damaging your cash flow predictions in the long run.
Even if you’re vigilant about manually eliminating errors, it’s easy for ‘blind spots’ to emerge as you get busier and busier. The only way to reduce human error is to take humans out of the picture entirely – and use technology to automate key accounting processes.
Develop a comprehensive cash flow strategy
Cash flow is often misunderstood as a simple matter of being ‘in the red’ or ‘in the black’. There’s far more to it than that, and a comprehensive cash flow strategy can make all the difference.
It’s about making sure you have enough staff to make the most of spike periods – and knowing how to upsell to customers, bring them back, and generally get more with less during downtimes. A reorganisation of staff schedules at the right moment or a strategic promotional sale can make all the difference.
Use accounting software
Accounting software works: it provides greater visibility, it makes it easier to manage your finances, and it facilitates better, smarter, and more efficient accounting.
And with Making Tax Digital rolling out for most businesses over the VAT threshold in April, using HMRC-approved accounting software has never been more important. Xero can link to your business bank account and your point-of-sale system to track all transactions and expenses in real-time – with no data entry from you or your team. The system pools all data to create a transparent, accessible dashboard of your financial situation – one that’s automatically updated every day. And because all information comes directly from the bank, it’s reliable and accurate.