Time To Grow: managing your business finances

Let’s face it – you probably don’t get out of bed each day ecstatic to manage your business finances – after all, this part of business can feel overwhelming.

But finances are a fundamental part of running your own business, and ultimately, it has an enormous impact on your overall success and longevity.

In this blog, the fourth of our Time To Grow series, we’ve covered everything you need to know about business finances and how to optimise your management.

What is meant by business finances?

In essence, your business finances, also known as cash flow, is the money coming in and out.

The management of your business finances often requires you to chase money owed, balance your books and pay any suppliers/employees.

Why is cash flow important?

There’s a saying: revenue is vanity, profit is sanity and cash flow is king.

Cash flow, by definition, is the money that’s constantly exiting and entering your business;  money leaving to pay costs and wages is ‘expenditures’ while money coming in from customers and clients purchasing your product/service is ‘income’.

The reason cash flow is such an important part of managing your business is that it provides a window into your financial state – essentially, are you making a loss or profit.

Additionally, if you have a negative cash flow – more money is going out than in – you’ll eventually run into issues paying suppliers and bills, resulting in you either requiring a business loan or dipping into your overdraft, if those options are even available.

What challenges are SMEs facing with cash flow?

Barclays bank found that 60% of small businesses (SMEs) are currently waiting on money tied up in unpaid customer invoices.

When you consider that so many SMEs are simply waiting to be paid, it’s no surprise that 20% have run into cash flow problems.

In fact, according to CB Insights, the number one reason start-ups fail is because they run out of cash and/or have trouble raising capital.

How can you manage your cash flow?

Good cash flow management requires knowledge of what is coming in, what is going out and when.

To get that level of insight, you need data, and in turn, timely and accurate financial reporting that covers:

• Cash flow forecasts
• Sales forecasts
• Management reports (balance sheet, profit and loss statements)
• Budgets

These reports will help you put together a picture of your business’ performance, financial health and upcoming income.

You can create a cash flow forecast or track your sales using spreadsheets, however, this method is prone to significant human error and requires an enormous time commitment.

A better alternative is to use accounting software that produces many of these reports quickly and easily.

Additional software functionality such as open bank feeds also automatically pull in your banking transactions, giving you an accurate and real-time view of your cash position.

Five tips for taking control of your cash flow

Below are five additional ways you can take control of your cash flow:

1) Regulate your income

One way you can regulate your income is by considering your customers’ payment cycles to make sure your invoice doesn’t miss their payment run.

Also, utilise modern software to make it easier for customers to pay you; software provides tools such as a ‘pay online’ button on your invoices in addition to invoicing functionality that creates reoccurring billing or credit control automation.

2) Incentivise customers

You can deploy methods such as offering discounts for early payments and penalties for late payments to incentivise your customers.

Ultimately, your customers won’t want to face additional costs, and the opportunity to reduce their bills should make them eager to pay as soon as possible.

3) Control your expenditure

The age-old saying rings true today: time is money.

So, the more time you can save on admin tasks, the better.

To reduce the time spent on managing cash flow, make sure your accounts payable process is efficient, or better still – automated.

With automation and software, you can set up reoccurring purchases, automatic invoice matching, electronic expenses and receipt capture.

4) Introduce software integration

Software integration can play a fundamental role in saving time and improving processes.

By integrating your software with your eCommerce platform, CRM system or payroll software, you can eliminate manual data entry and duplication of efforts, giving you time to focus on growing your business.

5) Find a good accountant

Almost 49% of SMEs rely on their accountant for strategic business guidance.

A good accountant will not only help you prepare your annual accounts and deal with your tax returns, but they can advise on financial budget preparation, funding options and other personal finance queries.

Time To Grow

Do you need more time to manage your business?

For a limited time, we’re offering up to 50% off all IRIS software, providing you with the tools needed to optimise processes and streamline admin.

Learn more here.

*Managing finances can be complicated, so please only treat this blog as a guide, and speak to a professional advisor for legal advice.