Healthy cash flow is one of the most powerful weapons in a small company's arsenal.
In fact, cash on hand can be the deciding factor in a customer's choice to buy from your company or a competitor.
For instance, imagine landing the large order of your dreams, but losing the business to a competitor because you lack the capital necessary to prepay for the products needed to fill the customer's order. Fortunately, you can avoid this pitfall by making a few simple changes in your operations.
Below is a look at seven ways to grow your monthly cash flow by reducing expenses.
Why is Cash Flow so Important for Small Businesses?
Healthy cash flow is important for businesses of any size.
But cash flow is especially important for small businesses.
Your company's ability to grow hinges on your ability to attract new prospects and handle large orders. However, these two goals are difficult to achieve if you lack the cash flow to invest in marketing initiatives or prepay vendors for products to fill those large orders.
Here are a few reasons why it is important for your small business to have a healthy cash flow:
- You will have the capital to be able to invest in new products or ventures
- You can pay your vendors on time and position yourself for discounted pricing
- You will be able to handle unexpected emergencies that can prove to be costly
- You can comfortably handle basic operating expenses if payments from key customers are delayed
What are Some Ways to Grow Your Monthly Cash Flow?
Growing your monthly cash flow is an easier process than you may think. In fact, there are some simple changes you can make today that will help increase your cash on hand.
Here are seven ways to grow your monthly cash flow by reducing expenses.
1. Move to a paperless invoicing system
Moving to electronic billing can help your business save money on supplies and labour.
And because paperless invoicing is faster than preparing and printing paper invoices, customers receive their invoices faster. This means they can remit payment to you more quickly, thereby increasing your cash on hand faster.
Here are a few specific ways that moving to a paperless invoicing system can help lower expenses:
- Reduce expenses on postage, envelopes, and ink
- Lower printing costs and printer maintenance fees
- Eliminate the need to pay workers to stuff envelopes
- Reduce the carbon footprint at your office
Note: For more information on invoicing best practices, refer to our guide on how to make invoices.
2. Encourage customers to pay when they place their orders
Few strategies are more effective for increasing your cash flow than receiving payment in full when an order is placed.
While allowing customers 30 days to pay an invoice offers the flexibility that many of your customers seek, this practice restricts your cash flow by delaying receipt of payments.
Here are some simple steps to help prompt customers to pay when they place their orders:
- Ensure that your business is set up to accept payments by bank wire transfer, PayPal, and credit card
- Make sure that your customers are aware of all of the forms of payment you accept
- Offer a cash discount for customers who pay in advance for their orders
3. Reduce rent by switching to a virtual office
Imagine being able to enjoy the amenities of a professional office at a prestigious London EC1 address without the financial stress of high monthly lease payments. By switching to a virtual office, you can make this dream a reality.
Here are some specific ways that switching to a virtual office can help you impress your customers while reducing expenses:
- No hidden costs: Transparent pricing and the absence of setup fees makes switching to a virtual office a financial home run
- Professionally trained staff: Your customer calls and mail will be handled by highly trained staff instead of being routed to a post box
- Furniture savings: When you use a virtual office, you do not have to worry about paying for furniture and electronics
- A convenient location: Customers will appreciate the prestige and convenience of a London EC1 address
- SEO services: You will receive guidance from marketing specialists to help boost your online presence on Google to funnel leads to you
4. Consider leasing instead of buying equipment for your business
"Unless your company is flush with cash, you're going to want to maintain a cash stream for day-to-day operations. By leasing, you pay in small increments, which helps improve cash flow. An added bonus is that lease payments are a business expense, and thereby can be written off."
- Dan Moskowitz, Investopedia
Most small businesses require equipment such as printers, copiers, scanners, and furniture.
Companies in the manufacturing industry face even larger expenses for items such as forklifts, pallet jacks, and lifts. And if you own a service company, you may find yourself in need of one or more vehicles for your employees.
Leasing this type of equipment as opposed to paying a hefty sum up front can free up thousands of dollars per month for your business. For example, consider the fact that the average cost to buy a forklift ranges from £11,758 to £19,597. If you lease a £19,000 forklift, on the other hand, you will pay approximately £470 per month.
Remember that you can always purchase your equipment once you are on more solid financial ground.
5. Explore refurbished equipment for your business
If you are keen on owning your equipment and building your pool of assets, you can still enjoy the benefits of ownership while reducing your expenses by considering refurbished equipment and furniture.
Refurbished products are pre-owned but have undergone professional testing and restoration to ensure that they meet the same quality standards that were established by the original manufacturer.
The greatest advantage of refurbished equipment is an affordable price tag. The cost of refurbished equipment and furniture is often 25 to 50 percent lower than the cost of brand new items.
In addition to a lower cost, refurbished equipment offers the following benefits to small businesses:
- Quality: A growing number of refurbishing companies are ISO-certified with a strong focus on quality
- A warranty: The majority of the top refurbishing companies offer a warranty that ranges from 90 days to one year
- Buy-back options: Many providers will buy your used items back or offer a trade-in value if you no longer need them
- Service: Most refurbishers will offer repair and service options in case you encounter trouble with industrial or technical products
6. Use third-party services for finance and IT needs
Many small businesses are not able to afford the expense of hiring a full-time chief financial officer (CFO) or IT specialist. F
or example, hiring a full-time CFO can cost you over £150,000 per year. Justifying this type of expense is often difficult for a business in its infancy that may only need the services of a CFO or IT manager on a sporadic basis.
In these cases, third-party accounting and IT services offer five-star support without the six-figure annual cost.
For example, sole traders can explore accounting packages that start at £39 per month. Packages feature a dedicated accountant who understands your business, company registration services, VAT returns, and unlimited support by trained accounting professionals.
7. Negotiate with existing vendors or consider new suppliers
As your company grows, you will notice that more vendors will be vying for your business. In many cases, they will be willing to offer discounted rates to get their foot in the door.
Even if you are satisfied with your existing vendors, it is a good idea to meet with them at least twice each year to review your contract and explore opportunities for cost savings. Do not be afraid to ask for a rate reduction, especially if your utilization of their services and products has increased.
Exploring new vendors is always a good idea to ensure that you maintain an awareness of the market. One of the best ways to meet new vendors is to attend industry trade shows in the London area. Many vendors offer special rates and discounts during trade shows, which can make a sizable dent in your monthly expenditures.
Limited Company Expenses Guide
The Bottom Line
Finding creative ways to stimulate cash flow by reducing expenses should be a top priority for cash-strapped small businesses.
By following the seven tips above, you can minimise your monthly expenditures and enjoy a healthier cash flow. From adopting a paperless invoicing system to using third-party accounting services, you can reduce your operating costs without sacrificing the quality of service your customers receive.
To learn more ways to help your small business enjoy sizable savings, we invite you to get in touch with our accountants at Forma. We can help you secure a virtual office, in addition to providing a variety of other value added services that will help increase cash on hand for your business.
As London's most trusted provider of office solutions, we look forward to serving as your single source for all of your business office needs!
Limited Company Expenses Guide
- Allowable business expenses
- Employee expenses
- Travel expenses
- Office & equipment expenses
- Professional services expenses
- General expenses
- Allowable business expenses
- Employee expenses
- Travel expenses
- Office & equipment expenses
- Professional services expenses
- General expenses
Read More Guides below:
Bookkeeping vs Accounting Differences
As a small business owner, having a good grasp of your business financials is key-even if you've hired an accountant.
While you can delegate your accounting tasks, understanding the basics will place you in a better position when it comes to discussing your business finances with your team members, financial professionals or potential investors.
Previously, we've explained about the top accounting terms and concepts you need to know. In today's post, we'll explain the differences between bookkeeping and accounting. While these two terms are often used interchangeably, they refer to two vastly distinct functions and roles.
Beginner's Guide to Bookkeeping for Small Business
Starting a new business?
Bookkeeping requirements are unlikely to be at the forefront of your mind. At this stage there are more pressing things for you to think about.
However, once your business is taking shape, you will need to start thinking about keeping up-to-date and accurate accounting details of your income and expenses. But what kind of records do you need to keep?
More than just a legal requirement, basic bookkeeping is an essential part of your ability to manage your business effectively.
Every year, your business accounts will need to be completed. If your business is operating as a limited company, you will need to submit your company accounts to Companies House. If you are self-employed, your business accounts will be used to calculate your Self Assessment tax liability.
Your bookkeeping records will form the basis of these statutory financial statements. They should include information relating to your sales, your expenses, salaries of you and any employees, along with other bank transactions.
It might sound complicated, but take it one step at a time and it's actually quite manageable.
If you're really struggling to stay on top of it all, there are plenty of small business accountants and professional bookkeepers who will be happy to help. So, even if you're terrified of numbers, rest assured that there's a solution out there for you.
How to find an accountant
If you have a company, or are starting one, then you will need an accountant.
Though you could do all your accounts yourself, in practice few business owners have the time.
An accountant also checks that you are doing everything correctly, and is a useful reference for both HMRC and financial institutions should you ever need to apply for a loan.
The trouble is that finding the accountant who is right for you is never easy.
You do not want to pay more than you have to, but are low-cost, self-service, internet-based accountancy packages really the best fit for your business needs?
In this article we shall break down that option and its alternatives for you, as we answer the key questions that are occupying your mind right now:
- Do I need an accountant?
- What should I look for in an accountant?
- How do I find the best accountant for me?
The purpose of this article is to give you the context and background you need to ask the right questions-especially when you may not yet know what those questions are.
Where can I find my Accounts Office Reference number?
You can locate your Accounts Office Reference number (AORN) on the confirmation letter you receive from HMRC when you first register as an employer. The AORN contains 13 characters, and follows the format 123PA12345678.
My tax code is incorrect ‚- how do I change it?
If your tax code is incorrect, you can use HMRC's check your Income Tax service to notify them. If you're not able to use the online service, you may get in touch with HMRC through other contact methods.
Creating your business budget
Running a business involves catering for many aspects of the business that can bog you down.
You can even forget crucial roles, such as monitoring your small business finances. Although budgeting may not be the best and most exciting part of running an enterprise, it is fundamental for success.
When starting a new business, a budget is a vital part of your business plan. Once the business is open and operational, then budgeting becomes an essential exercise that takes place annually or quarterly.
A budget comprises of fixed and variable costs accompanied by the allocation of monies to reflect business objectives.
Are there any penalties for delivering Company Accounts late?
The following penalties for private limited companies will be imposed if you fail to file your accounts with Companies House on time:
- Up to 1 month late: £150
- 1 - 3 months late: £375
- 3 - 6 months late: £750
- More than 6 months late: £1,500
5 invoice template tools to help you invoice when self employed
An invoicing problem is a good problem to have.
It means that you have too many clients or too much work to properly charge for it. The good news is that it's an easy problem to fix.
I know how important this is because I've been there as a small business owner - and I searched for a long time to solve this problem and make it painless.
Besides hiring a personal assistant or part-time accountant (which is impractical for most smaller-time, one-person-show contractors), there's the option of using invoicing software that makes the process easy.
Below, I break down the difference between five popular invoicing tools to help you get started on making a decision.
Your decision will ultimately depend on what your business really looks like.
These are some questions you can ask yourself:
- Do you only have a handful of regular clients?
- How do your clients prefer to pay you in a certain way?
- Are late payments a recurring problem for you?
- Do you send out invoices, or does somebody else?
- Do you already have accounting software in place, or are subscribed to an accounting package that includes the use of an accounting software?
- What other applications and tools do you use for your business?
What are National Insurance numbers?
The National Insurance number is a number used in the administration of the National Insurance or social security system. It is unique to each individual, and helps ensure that the National Insurance contributions and tax you pay are properly recorded against your name.
What can accountants help contractors with?
The goals for accountant's is to help businesses with tax and compliance duties whilst providing strategic advice to save money and time, allowing the business to focus on it's core activities.
Everyone knows that accountants will complete tax returns and accounts but the very best accountants will go one step further in ensuring the very best for the business.
How do I find an accountant?
In today's times, you can find an accountant pretty much anywhere you go whether that's walking down the high street or browsing the internet. Take a look at our guide on choosing an accountant to get some tips on what to look out for when choosing an accountant.
How do accountants charge contractors?
Like with all service offerings, you can find contractor accountants at pretty much every price point. Some accountants will charge by the hour, some by piece of work or like ourselves, will offer a fixed monthly fee covering everything you will need in one clear package.
When Should I Hire a Small Business Accountant?
If you're a self-employed person or small business owner, you might have already asked yourself the question, "Do I really need an accountant?"
When people ask that, they usually mean, "Can I justify the cost of an accountant?"
It seems simple: Hiring an accountant might seem like something you could do without, and if you handle the accounting yourself, you save money.
But that isn't the best way to think about it. The reality is that there are hidden costs associated with DIY accounting, and you don't want to come up short. So instead, ask yourself, "Will hiring an accountant add value to my business?"
The answer is yes.
Below, we'll cover the key cases when you should hire an accountant:
How much should accounting cost?
As a new business owner, you'll often find yourself juggling numerous roles and tasks-from growing your business, to managing your operations, financesand taxes.
In addition, you're now required to meet your legal obligations as a limited company director-such as filing the necessary paperwork and accounts on time-or you'll risk being penalised.
Staying on top of all of these tasks can feel overwhelming, and here's where a limited company accountant comes into the picture.
Below, we'll look into:
- What you can expect to pay for limited accounting packages
- Services that are included in the cost
- FAQs relating to choosing a limited company accounting provider
Contractor Accounting Services
We pride ourselves on providing an unparalleled level of support that will make you feel valued, eliminate your admin and ensure you're being as tax efficient as possible.
VAT registration & filing
We'll registered your company for VAT, and ensure VAT is always filed well ahead of the deadline. We will ask you to confirm that you're happy for us to automatically file your VAT without having to approve it which will ensure that we can get this filed as soon as possible.
We'll also help you get setup with a Direct Debit for HMRC so that you can make your VATpayments automatically without having to manually do this every quarter. This saves you time and the stress of ensuring you've paid on time, and importantly will make sure you don't have to pay a penalty for a missed deadline.
We aim to complete your annual accounts well ahead of schedule to ensure you have complete financial records.
You should never have to guess how much corporation tax is due. We'll make sure you know how much is due and when it's due.
We'll make sure to keep your Companies House account up to date and ensure your confirmation statement is filed on time.
We include a Self Assessment with our operate and grow packages and this is also available as an additional £99+VAT one-off charge.
From your salary, dividends, pension, investments and company expenses, we'll help you optimise your tax.
How do I plan cashflow?
Here are a few strategies to better cash flow management:
Be rigorous about updating your cash flow: It can be helpful to update your cash flow whenever there is new information-such as when you've made a payment, or when a client informs you that a payment is coming in late. You'll need to have a system for managing your cash flow, whether that's a spreadsheet or cash flow management tool.
Carry out an in-depth analysis on a regular basis: Carve out a block of time each quarter to carry out an in-depth review of your cash flow. You'll want to assess your overall financial position, and look ahead at your cash flow projection for the next quarter.
Implement milestone payments for extended projects: If you're working on an extended project, consider structuring your payments by milestones-rather than receiving a single payment at the end of the project.