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Five steps to managing your business finances

Five steps to managing your business finances
Paul Savage
Paul Savage
Principal
Paul Savage trading as AIMS
 

Posted: Wed 6th Oct 2021

Businesses have always had to survive difficult times – when significant customers move elsewhere, for example, or when key suppliers go out of business.

In the past, however, these hurdles would tend to present themselves in isolation. A business might struggle to survive them, but would have alternatives to turn to, and eventually prosper.

COVID-19 has changed that for a significant number of businesses – but not for all, which makes it more difficult to manage. Yet the same principles that have seen businesses survive in the past will see them through to the future.

So, what should you be doing? Here are five key steps to keep in mind.


1. Talk to your customers

Find out what your customers want and how you can help them.

As an example, take your local dry cleaners. The owner recognises that many customers are afraid of COVID-19 and don't feel safe coming to the premises. So, now they open later and close earlier to provide a collection and delivery service. Turnover is down, and it's hard work in a semi-rural community, but the business will survive. Loyal customers have tried to help by bringing their curtains and bedspreads to be cleaned.

By contrast, consider the mechanic. During lockdown, they picked up work, helping customers to complete projects that had not seen attention for some time. They painted a petrol tank for a motorbike and resprayed a 1960s Cortina. However, because they didn't make people aware of the work they could do, they haven't developed a potential new line of work. They last updated their website in 2015.

2. Remember that salesmen just give the product away

Until the cash from your customer is in your bank account, all you've done is incur the costs of the sale, whether it's goods or services. You haven't reaped any benefit.

It's crucial that you aren't afraid of credit control and that you pick up the phone to talk to customers about payment – or employ somebody to do it. It really is that simple.

Any business will experience periods when cash is tight. The first question to ask when deciding how to divide up available cash is "Have they asked for it?" If the answer is no, it's a simple thing to defer the payment to the next payment run.

Also, you don't need to wait until the invoice is due. It's good business practice to ring and check if the invoice is approved and ask when it's scheduled to be paid.

3. Have a cash forecast

Forecasting your cash is vital, and these days there are plenty of online solutions to help. If your business is VAT registered and/or pays rent every quarter, a 13-week forecast will cover your immediate business cycle.

You may need longer if your business is seasonal or spending large amounts on a project. The forecast will reveal where the 'pinch points' are in the near term and give you the opportunity to manage cash – by chasing debtors or talking to suppliers, for example.

If the problem is more severe, talk to potential lenders in good time to find an acceptable solution.

4. Understand your customers

Not all businesses have felt the impact of COVID-19. As a result, it's important for you to understand:

  • how the pandemic has affected your customers and key suppliers

  • how that might, in turn, affect your business

For example, the vehicle leasing business that hires vans to sole-trader delivery drivers can be reasonably certain that there are no immediate risks to their business risks.

However, the business that has a fleet on hire to a company providing sound and lighting rigs to outdoor events will have to stay much closer to its customers. That business needs to understand when and if the client will be able to make payments, and the impact of that timing on its own business.

5. Have a plan

Combine all the above points and you see the need to have a plan that convinces you how you're going to get through the next 12 months.

Informing the plan will be all those discussions you've had with customers, suppliers and others, so you know you've built it on sound foundations. More to the point, you'll be able to plan for any actions you need to take – discussions with lenders, for example – long before the problem becomes acute.


Relevant resources

An essential guide to managing your finances and cash flow

The essential founders' guide to financial planning during a crisis

Why your small business budget is your best friend

 
Paul Savage
Paul Savage
Principal
Paul Savage trading as AIMS
 
I'm here to help. I'm volunteering free advice calls of up to an hour as part of the Recovery Advice for Business scheme, over the next 6 months. Please get in touch to see how I can help your business. As a chartered accountant with a career spanning over 35 years I have been fortunate enough to deal with business owners throughout the North Eastand have experience of a wide range of industries. Now, more than ever, every business owner needs to have a clear picture of how their business will be able to survive and prosper over the next few months. I want to help you understand that picture and convert your plans to a detailed forecast of what your bank balance will look like. Together we can plan your path to a successful future All of my clients are assured of a cost effective and professional accountancy service which is individually tailored to their own needs. Being part of AIMS Accountants for Business also means that you agree a fixed fee with me before any work starts and I help your cashflow by taking payment by direct debit. I am a business owner myself. This means that I also understand the challenges and pressures faced by all business owners on a daily basis. I am here to take the stress of financial planning, tax and reporting away from you so that you can focus on what’s important i.e. your business! Find out for yourself how you can benefit from my accounting experience and extensive technical knowledge. I can focus on the numbers, so you can focus on your business. And please, I am here to help so don't try to struggle through on your own. I'm volunteering free advice calls of up to an hour as part of the Recovery Advice for Business scheme, over the next 6 months. Please get in touch to see how I can help your business.
 

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