Action List: How to streamline your finances

Secure finances are vital to your business. But how do you manage efficient cashflow and keep costs down asks Martin Malcolm

1. Identify savings. Check all your business outgoings. Could you get a better tariff for your electricity? A discount for bulk-ordering supplies? Reduce printing costs by switching to email? Could you avoid costly maintenance by leasing key equipment rather than buying?
2. Chase invoices. Invoice daily or weekly rather than monthly and send polite-but-firm reminders. Offer slow-payers instalment terms, so you get part of your fee quickly, or discounts for prompt payment. State ‘Payment is due within 14 days’ on your invoice. Encourage clients to pay directly into your business account to reduce delays in dealing with cheques or cash.
3. Manage your credit. Are your bank’s service fees and interest rates competitive? Could you get a better deal elsewhere? A small-business loan may provide cheaper repayments than your current overdraft facility or business credit card.
4. Put spare finances to work. Transfer any surplus in your business account to an investment fund until you need it, to earn interest. Your bank can suggest suitable investment vehicles that still give quick access to your cash. Establishing this fund gives you a cash reserve for contingencies.
5. Shop around. It’s not just a question of getting cheaper raw materials by switching to a new supplier. Review your suppliers’ payment terms too. Suppliers who offer extended credit, giving you longer to pay, provide vital wriggle room at times when your finances are stretched.
6. Consolidate your finances. If you have several business loans, consider consolidating them into a single loan at a lower interest rate. However, check the terms carefully. Typically, repayments are spread over a longer period so you may end up paying even more interest over time.
7. Make a cashflow forecast. Check for peaks and troughs in your accounts over the past trading year. These patterns show ‘pinch points’ in your cashflow and help predict when your finances are likely to be strained in future. Well-founded projections show you the best time to invest in your business. They also establish if you are about to overcommit yourself before taking on a major order, a typical cause of cashflow problems.
8. Plan your investment. Identify areas of your business that could appeal to a wider customer base. Could your existing contracts be used for other projects? Check on additional services or products your suppliers could provide. These may reveal a fresh source of customers. Allocate funds to develop these parts of your business. Don’t leave this funding in a central pot, but designate amounts to specific projects, to keep a closer check on spending.
9. Outsource services. Another operator could manage part of your business cost-effectively for you. For instance, if you devote disproportionate effort to delivering your products, you could save time and money by cutting a deal with a distribution firm. Admin, IT services and bookkeeping are all suitable for outsourcing.

Cardinal rules

Do

• Identify savings
• Outsource services
• Make a cashflow forecast

Don’t

• Leave invoicing until the end of the month
• Stay with uncompetitive suppliers
• Leave surplus funds idle