One in four businesses don’t make it through the first year and more than half don’t survive past the fifth. Unsurprisingly, one of the main reasons for this is down to cashflow – without it, a business simply cannot stay afloat. Below are some of the most common cashflow problems and how you can prevent them from occurring in the first place.
Lots of new business owners put their bookkeeping to the side because they’re so busy with the huge workload involved with setting up a new company. Although this is completely understandable, the longer this is neglected, the worse your problems will get. After all, if you’re not on top of the money coming into and leaving the business, how will you know what to prepare for?
It’s also important to ensure that you keep a proper record of which customers have and haven’t paid you otherwise significant sums of money that is owed to you may be getting overlooked. An effective accounting system is absolutely vital to manage your cashflow. If you don’t have the time to do it yourself then an accountancy practice will be able to do this for you.
Bad debt is money that is owed to you but cannot be recovered – usually because a company has gone out of business. This can be crippling for any new company but is usually preventable if a proper credit control system is put into place early on. If you discover that a customer has a poor credit record but you still want to take them on as a client, ask them for an upfront deposit or issue partial invoices so they can pay as portions of the work are completed. This prevents you from being out of pocket by a huge sum of money.
Out of sync credit terms
If the credit terms you have set your customers are out of sync with the credit terms set by your suppliers, you are going to run into negative cashflow very quickly. For example, if you allow your customers 30 days to pay but your suppliers require payment within 14 days, you are going to struggle to meet your financial commitments.
If you are currently in this situation then re-negotiate terms with your customers and/or suppliers. If this isn’t possible straight away then you could try to come to some sort of agreement with those you owe money to and you could encourage customers to pay up promptly by offering an early settlement discount.
No cashflow forecast
A cashflow forecast is essential for any new business and is something that a qualified accountant can put together for you. This will allow you to forecast the months you can expect to see a cash deficit and when you may experience a surplus. This will allow you to plan ahead as well as give you a pretty good idea of how much cash your business is going to need over the next 12 months in order to survive.
If you would like further information about managing cashflow or if you are currently experiencing any difficulties, please feel free to contact Windsor Accountancy and one of our qualified accountants will be more than happy to help.