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Top tips to manage your business cash flow through the summer months!
by Peter Fleming

The summer months for businesses can notoriously be a tight period for cash. With productivity levels down due to staff being on annual leave, consumers on holiday so a slower sales period, having high stock levels or high work in progress due to extended production periods and all compounded by having slow paying customers!

You may have had a strong trading period during the first 6 months of the year, however turnover, profit and particularly working capital for the vast majority of businesses takes a dip through the summer months and never really picks up till late October. Plus you’ve likely VAT to pay in early August!

According to the Office for National Statistics (ONS) only 45% of start-up businesses survive beyond five years and 70% of VAT registered business don’t trade past 10 years. This doesn’t mean the businesses that fail or cease trading are bad businesses or didn’t have attractive products or services, as a number of studies show that 80% of business failures are due purely down to poor cash flow management.

So what can you do to ensure that your businesses doesn’t become a potential casualty? – Download free info graphic

  1. Have a plan – if you are expecting declining or possibly even increased sales through the summer, plan and plot the likely impact of any associated costs and the resources required.
  2. Know your numbers – Having enough funds available for working capital is critical, therefore create a cash flow forecast and understand the minimum amount of money required each month to run your business. I.e. to pay staff wages, utilities, suppliers and taxes etc. Ensure you have this amount in your bank at all times or arrange an extended overdraft facility or short term loan to cover the potential shortfall!
  3. Invoice early – most businesses don’t invoice early enough, so ensure any products and services are charged to the customer as soon as delivered so the clock starts ticking on your payment terms straight away.
  4. Chases debtors – Check daily your bank account and stay on top of who owes you money, then spend time contacting them for payment. Using online accounts systems are excellent in helping you manage this process. If you don’t have time yourself, allocate this task to a trusted member of staff or outsource to an associate.
  5. Consider offering discounts for prompt payment – if you have customers continually pay over your standard terms, consider offering 2-4% discount for payment within say 14 days or to sign up their account to a Direct Debit (DD). This is a much cheaper way of improving cash flow than a obtaining loan or using invoice discounting
  6. Protect yourself against bad debt – regularly credit check existing and new potential clients. That new customer you may have just gained a large order from may be a slow payer or in financial difficulty. Note, you can also obtain insurance for bad debt (credit insurance).
  7. Understand your sales cycle – the time scale and associated costs from point of order to deliver and being paid. I have a client whom ships product from China to the UK to resell, however they often have to pay in full for the goods prior to the shipment leaving China. Managing their cash tied up in stock until it is turned into cash when sold and paid for in the UK can be a major challenge, even for growing businesses. In this instance the company has 10 weeks of working capital tied up per shipping consignment.
  8. Pay your suppliers on time – keep a good relationship with your suppliers to be able to continue trading as on occasions you may also need request extended payment terms when money is tight.
  9. Understand your tax liabilities – if VAT registered ensure you keep a tally each month of what VAT you owe. Likewise any corporation tax, PAYE or NIC etc. that’s due. The late summer months can be a notorious time for cash flow issues causing business failures. A good tip is to set up a second bank account and top this up each month with any surpluses to pay future VAT or tax.
  10. Keep in touch with your bank – if your business is seasonal or you know you are going to have a couple of quieter months through the summer, then talk to your bank first. They will likely be more prepared to support you in the short term particularly if they know you manage your business well by doing all of the above.

Finally be resourceful – for instance you don’t have to own all your assets, you could sell assets and rent and lease equipment from cars, vans, forklifts to even printers, photocopiers and office furniture. It is also possible to finance your stock. Whilst this may seem an extra cost at least you don’t have your cash tied up and may help you sleep at night. Consider outsourcing or using subcontractors, as this may be more cash efficient and more flexible than having too many employees on your payroll through the quieter months. Consider sacrificing a little bit of profit to be cash positive to survive those tougher periods.

Remember; Turnover is Vanity, Profit is Sanity but Cash is Reality!

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