You have probably heard that before, but in business it is absolutely key. You can be making a lot of profit but if your customers are not paying you the cash, then you won’t have the cash to pay the tax bill/VAT bill on that profit that you’re generating.
Businesses also go through time of difficulty and at those times, cash can be a little bit on the tight side. Your turnover might have dropped but you have still got the expenses to pay.
You should be managing your cashflow from day one. You should have a record of when you expect the money to come in and when you expect to pay it out. If you don’t, you suddenly find you haven’t got enough cash to pay the things you need to pay and before you know it, HMRC are threatening to send your limited company into liquidation or if you’re a sole trader, force you into bankruptcy, which could potentially cost you your home.
We work with our clients and we help them manage their cashflow. With the help of software we can work with a client to help them identify when they are likely to be paid and when they are likely to need to make payments to their suppliers, to their team members, to HM Revenue & Customs and any other creditors. If you know that you are going to have a period when you don’t have enough cash to cover your expenses, you can plan for that eventuality and if necessary come to an arrangement with your creditors. Creditors are usually prepared to work with you if they know in advance that you have problems rather than wait until a debt is overdue. Similarly, you can chase up your customers and get a date from them of when you expect to be paid.
If you don’t manage your cash properly, your business will fail. The biggest cause of business failure is the failure to manage cash. It’s tricky, but we are here to help.