Negotiations between the EU and the UK on Brexit are still ongoing – meaning that a no-deal Brexit is on the table once again. Unfortunately, the new complicating factor of COVID-19, and the economic hardship it has brought with it, leave small business owners with plenty of unknowns and challenges still to face.
Strong cash flow management is the cornerstone of business health. We know that 65 percent of small businesses fail because their finances aren’t up-to-scratch. Still, it can be a real challenge to understand where your business stands and what it needs to do to improve – especially with external variables shifting so quickly.
Regardless of the outcome of Brexit, it’s worth thinking about the steps you can take to safeguard your business. To help, we’ve outlined five ways you can future-proof the cash flow of your business.
While it can be hard to fully grasp factors in the big picture, such as the coronavirus and Brexit negotiations, it’s small-scale pitfalls that often hurt a business the most. 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, very often, the simplest tasks that take a lot of time and can be subject to human error.
Spreadsheets are an excellent example of this: they can quickly pile up – to the point where simply finding what you’re looking for can be tricky – 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 It’s also not long before it’s out-of-date, meaning you’ll never get full visibility into cash flow health.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 percent 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 – think of the additional demands placed on the business during lockdown – 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.
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.
Preparing for uncertain times
There will be some rough spots in the months ahead for the UK’s small business sector as we approach the Brexit deadline. Businesses which adopt the right tools and processes now and plan ahead with their accountants will have the best chance of weathering the coming storm. Besides, businesses that have made it this far have already demonstrated that they have all the grit and resilience they need to take on turbulent times.
At Xero, we’ve also released several new features – such as Business Snapshot and a pilot of our short-term cash flow feature – which we believe will give you the visibility and insight you need to manage cash flow, no matter what comes next. Visit our dedicated Brexit Hub for more advice.