This blog is aimed at small business owners in the UK. We’ll be letting you know some hints and tips on how you can manage your cash flow better and, hopefully, not run out of money in your business.
We speak to many directors who own fundamentally sound businesses, but they struggle with money, and essentially, their cash flow is in a mess. In some cases, this occurs when they aren’t getting money in quickly enough, which can cause many issues in other areas of the business.
We’re going to give you some ways to help. The more money you have in the business, the higher the chance will be that you can weather the storm. When it comes to business, you have to be prepared for ups and downs.
How to not run out of money in your business
Try to organise better payment terms with the people who owe you money
So, if you’re currently on a contract with 90-day payments, can you see if this can be changed to 60-day payments? In the same instance, if you’re on 60-day payments, can you ask them to pay you within 30 days? Or even, can you be paid as soon as you’ve completed the work? This is very important and is usually worth having a conversation – what’s the worst that could happen?
Ask for a deposit
Whether your business is struggling for money or not, what’s the harm in asking for a deposit upfront? A deposit can help to cover some of your costs and put some money in the till for things you need.
Many business owners are scared of asking for deposits, but they can be so important for helping to keep your business afloat. Most businesses do take a deposit upfront, we do at 1st Business Rescue.
Bill people on time
Most of the time, when it comes to small businesses, there’s one person doing everything. You’re the accountant, HR, sales, marketer and everything else! We know how tricky this can be, but when you’ve done a job, you need to get your invoices out there as soon as possible.
You might think, ‘Oh, I’ll invoice soon’ or ‘They’ll pay soon’, but then when things start going wrong and you see how much you’re owed, you start thinking, ‘Why didn’t I just bill them?’
The lesson is to invoice people as the work is completed, which will help you stay on top of your finances.
Chase payments
If you’re owed money, and your client is happy with the job, invoice them. You need to chase the payment.
If they haven’t paid the day after they’re meant to have, why aren’t you on the phone with them? Sadly, in business, the ones who shout the loudest get paid first. Don’t worry about upsetting the client. If you’ve completed the work and they’re happy with it, you need to get paid.
If they say they can’t pay for the work, you need to find out when they can. Once you have a date, you need to keep checking in on this and ensure that it doesn’t go on for too long.
Consider offering a deal for early payment
Think about this carefully and what you can afford to knock off the payment. For example, don’t knock off 20% of the payment. Instead, could you knock off around 2% for them to pay you early? That small amount might be enough for them to pay you early.
Everyone is looking at their bottom line and assessing where they can save money. If people have the money and can pay slightly less if they pay early, they might well accept the offer. Remember that even the smallest offers can make a huge difference.
It’s not an option for everyone – but could you start factoring your invoices?
Factoring your invoices is when you sell them to someone else. What they do is pay you a percentage of the cost upfront and then collect the rest of the invoices. There are lots of hoops to jump through, and it’s not going to be an option for everyone. Some business owners won’t even benefit from factoring, but if you can benefit, then it could help you. There are some warnings that you must be aware of before you begin the process.
We hope you’ve found this useful on how to not run out of money in your business. Don’t forget that you can get in touch for any advice on your business.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:
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