Accounting software is critical to cash flow improvements.

Doing the numbers in your head can quickly lead to a cash flow shortage and will not lead to cash flow improvements.  Financial or accounting software gives you insights into revenue and spending and places the financial control in your hands. While you might not be doing the data entry, the reports generated will be of immense value.

Your bookkeeper or finance controller can schedule supplier payments, organise to collect debtors, and more accurately forecast and manage the cash flow inputs and outputs in order to meet the budget requirements. Modern cloud accounting software makes it easy to stay on top of your financial situation and it’s inexpensive and easy for you to use.

Run your business and access your accounts from your computer, tablet or smartphone. Invite your accounting professional to view your accounts and provide valuable real-time advice. Your data is completely secure even if your computer is lost or stolen and the problems with backups are a thing of the past.

Preparing cash flow projections for next year, next quarter and, if critical, next week is more easily prepared and managed in your accounting system. An accurate cash flow projection can alert you to trouble well before it strikes. As difficult as it might be for you to prepare a cash flow budget, it’s one of the most important activities if you want to sleep at night.

What to do if your business runs into financial difficulties

Sooner or later, you will find yourself in a situation where you don’t have enough cash to pay your bills. This doesn’t mean you’re a failure. It’s quite normal to make mistakes about predicting the future.  It happens to everyone and be assured that there are normal, everyday business practices that can help you manage the shortfall and any associated problems.

The first thing to do is to seek professional advice. You may need to get in touch with an insolvency practitioner or business recovery expert as soon as possible. They will be able to give advice on whether or not your business can get back on its feet. Always keep in mind that Limited company directors who allow their company to continue trading business despite being insolvent can be held liable for any debts.

If you have problems paying taxes, you should prepare a payment plan and approach the tax office. As long as the plan is reasonable, viable, and sufficiently short-term, you have a good chance of it being accepted. Consult your solicitor if you are sued as you don’t want to make any mistakes when your business and reputation is at risk.

You can ask your suppliers for extended credit. If the problem is only temporary it should be emphasised along with the reason you require an extension. If you can, try and pay all your suppliers a portion of what you owe them to buy yourself more time. Above all else keep up regular communications. Creditors will get nervous when they don’t hear from you.

You will need ‘running money’

Keep your bank informed. If you inform your bank of a problem before it turns into a crisis you are more likely to get it resolved. In the meantime make sure you are the first one to be paid, even at a reduced rate. You need to eat and you will need ‘running money’ to take care of everything. Next, pay your employees, or unpaid employees will soon be ex-employees. Avoid at all costs getting on the ‘loan shark’ band waggon.

You can’t do much if you have no money in your pocket.

Cash flow problems have warning signs

There are several key warning signs of looming cash-flow problems and the need for cash flow improvements. A failure to heed these signs can push your business over the edge. If you take measures to solve these problems, you could avoid failure and save yourself considerable resources and stress.

  • Sales slump, 
  • Mounting debts.
  • Delinquent customer accounts.
  • Wages not being paid on time.
  • No understanding of cash flow improvements.
  • Inability to obtain funding.
  • Problems selling bad inventory.
  • Overdue tax payments.
  • Spending is out of control.
  • Low morale in the business.
  • Cash being used for personal use.
  • Gambling problems.
  • Unused, or underutilised assets not being disposed of.

Quotable quotes

“One of my earliest lessons was that balance sheets and profit and loss statements don’t pay the bills, cash flow does”. Peter Sergeant

“When profits are down, clean out cash traps and invest in more and better opportunities”. Peter Sergeant

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