5 Steps to Improve Small Business Cash Flow in 2012

Gary Turner, UK Managing Director, Xero

The Bank of England revealed recently that small businesses are having to resort to loans from wealthy individuals and “peer to peer” networking because of the lack of lending by banks, and almost daily concerns are raised about the National Loan Guarantee Scheme which is making no great in-roads to helping small businesses raise finances.  The recent budget was also lacklustre when it came to giving a ‘leg up’ to the 4.8 billion small businesses in the UK, with corporation tax cuts only benefiting larger businesses and fuel duty and business rates set to rise in the coming months.

Improving cashflow has to be top of mind for the small business today, with an unsettled economy still in our sights and the issues of lending facing many businesses for some time to come – the importance of managing cashflow has never been greater.

Through a combination of clearer processes and the use of new technology, small businesses can manage cash flow simply and more effectively.  Here’s my tips to improving your cashflow situation in 2012:

1. Talk to your suppliers

Supplier relationships, as with customer relationships, can often be very beneficial when it comes to cash flow. Some suppliers offer early payment discounts which can save you a lot of money.

In leaner times, it’s also worth having the discussion with your suppliers about payment terms or a short term credit extension. Large firms such as utility companies are unlikely to be flexible, but you may be surprised at how open your long-term suppliers can be – providing you give them advance notice – to renegotiating terms.

2. Embrace online accounting tools

Online accounting tools are an excellent way to manage cash flow. Systems can be configured to send alerts when outgoing payments are due, automatically invoice customers, and check if payments have been made. They can create and update cash flow forecasts based on real-time figures from daily bank feeds.

Online accounting also means you can access your accounts from your mobile device, wherever you are. Being on the move means no longer means being out of touch with critical invoices and bank balances. Accessing your accounting system from a mobile device means you can be on top of your cash flow, anywhere, anytime.

3. An apple a day

One of the simplest and most effective ways to manage cash flow is to spend a few minutes on it every day. Leaving everything until the end of the week or worse, the end of the month, can lead to missing creditor payment deadlines, incurring late penalties, or overlooking late incoming funds.

Rather than suffering a classic cash flow crisis, a little bit of work each day can keep your finances in check. Web-based tools and mobile devices allow owners and managers to carry    out finance housekeeping whenever and wherever they have a few minutes to spare.

4. Develop regular processes

Accurate cash flow depends on having the right information. It’s worthwhile developing good habits or even a formal process around inputting your company’s financial data such as bills, invoices and relevant due dates. Avoid losing or forgetting this information and include it in your daily accounts housekeeping

5. Look at your creditors

While many companies can be very focused on debtor accounts (incoming funds), few have clear internal processes to track and manage creditor accounts (outgoing funds). We all know that debtor accounts are vital – it’s how you make your money – but outgoing funds are often more controllable for small businesses.

Spend a little time reviewing your creditor accounts and how they are paid. It can make a huge difference while you’re chasing your own customer invoices.

Small business expert Gary Turner is the UK Managing Director of online accounting software firm Xero.

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