The Cash Problem
Cash is a problem for any business. The two main issues are either a lack of It or too much of it. If you are suffering a lack of cash in your business, you probably think having too much is not a problem, but it is still a problem just a different problem.
Lack Of Cash
The importance of cash cannot be overestimated; it’s the lifeblood of the business; without it, you can’t pay your suppliers and staff, and you will quickly find your business struggling.
A lack of cash is a major worry for small business owners. When you have cash flow issues, it’s one of the main causes of stress and worry. Cash is like oxygen for a business you always need a source of it, or you will quickly pass out or even die. Sounds dramatic but it’s true.
There is nothing worse than in looking at your bank balance and then looking at the date and thinking I am not going to have enough to pay my staff next week. It’s probably the one thing that keeps business owners awake at night.
If the lack of cash is the problem, then what’s the solution?
The solution is first to identify the depth of the problem. Without knowing how much cash you need and for how long, you won’t be able to find a solution to the lack of it.
To do this, you have to start a cash forecast. If this sounds daunting it isn’t – it’s simply a spreadsheet or piece of paper that lists the cash you have now plus all the cash you have coming in over the next few weeks and months, less all the cash coming out. If the result of this exercise is you are running out of cash, then you know you have a problem and, if the numbers are accurate, the size of the problem.
The next step is solving your cash flow problem and here’s how…
1. Credit Control – Get better at it – get the money in sooner to avoid a negative cash situation. Make sure that the person responsible for credit control is not afraid of picking up the phone and is firm about what is needed and expected from debtors.
TOP TIP – CREDIT CONTROL. Use a 3rd party, such as TopService, for older debts, Use Xero invoice reminder to prompt people to pay. Use Gocardless.com to set up DD for repeat customers.
2. Borrowing – if the cashflow issue is a short term one, then I suggest borrowing to overcome this – try the bank for an increased overdraft or funding circle. If you trade via PayPal or Izettle, you can also borrow from them.
3. Delay paying suppliers – suppliers can be squeezed in an emergency they won’t like it, but it’s better than not being paid at all. Many bookkeepers pay suppliers before they are due to make sure yours isn’t it.
4. Inject more cash into the business – if your business is struggling then you may have to find the cash from friends, family or if you have any your own money – put this cash into the business temporarily but do so knowing the risks. If the business is likely to fail, it’s unlikely you will see this cash again.
5. Factor your debts – your cash is tied up in your unpaid sales invoices you can release this at a cost by factoring the debtors – 3rd parties will lend against your invoices– be warned though, this can be costly.
6. Reduce Stock – If your business is a stock-based business, your cash may be tied up in stock take a long hard look at your stock holding and see if any can be sold, possibly at a discount, to turn that stock back into cash.
7. Time to pay – if HMRC is your issue, then you can arrange a time to pay with them on certain debts – the sooner you call them, the better.
8.Cut Costs – are you paying for anything you don’t need to? If now is the time to reduce this cost in your business.There are no magic solutions for overcoming cash flow issues, but a combination of the above may see you through.
Too Much Cash
“Why is too much cash a problem?” I hear you ask. The reasons are; first, that cash sat in a low or no-interest account is reducing in value and is costing you money and secondly, the cash is at risk if it sat in one account.
You need to think of ways of either spending your cash or making it work for you.
Spending your cash
We wouldn’t encourage you to frivolous spend your cash we would say invest back into your business – here are some ideas
- Invest in People – (See problem one about overcoming people problems)
- Purchase assets – would a piece of equipment make your business more efficient or increase productivity then invest some of the cash and do this.
Making the cash work for you
- Move the cash – don’t leave it in a business current account put it into longer-term deposit accounts across several banks – at least you will get something in return.
- Convert cash it into investments – cash has a low rate of turn mainly because the risk is relatively low but invest in something like Funding Circle or an EIS scheme to get a return. Investments that bear a risk to you will give you a higher rate of return.
Cash is a problem for any business. The two main issues are either a lack of It or too much of it. If you are suffering a lack of cash in your business, you probably think having too much is not a problem, but it is still a problem just a different problem.
Lack Of Cash
The importance of cash cannot be overestimated; it’s the lifeblood of the business; without it, you can’t pay your suppliers and staff, and you will quickly find your business struggling.
A lack of cash is a major worry for small business owners. When you have cash flow issues, it’s one of the main causes of stress and worry. Cash is like oxygen for a business you always need a source of it, or you will quickly pass out or even die. Sounds dramatic but it’s true.
There is nothing worse than in looking at your bank balance and then looking at the date and thinking I am not going to have enough to pay my staff next week. It’s probably the one thing that keeps business owners awake at night.
If the lack of cash is the problem, then what’s the solution?
The solution is first to identify the depth of the problem. Without knowing how much cash you need and for how long, you won’t be able to find a solution to the lack of it.
To do this, you have to start a cash forecast. If this sounds daunting it isn’t – it’s simply a spreadsheet or piece of paper that lists the cash you have now plus all the cash you have coming in over the next few weeks and months, less all the cash coming out. If the result of this exercise is you are running out of cash, then you know you have a problem and, if the numbers are accurate, the size of the problem.
The next step is solving your cash flow problem and here’s how…
1. Credit Control – Get better at it – get the money in sooner to avoid a negative cash situation. Make sure that the person responsible for credit control is not afraid of picking up the phone and is firm about what is needed and expected from debtors.
TOP TIP – CREDIT CONTROL. Use a 3rd party, such as TopService, for older debts, Use Xero invoice reminder to prompt people to pay. Use Gocardless.com to set up DD for repeat customers.
2. Borrowing – if the cashflow issue is a short term one, then I suggest borrowing to overcome this – try the bank for an increased overdraft or funding circle. If you trade via PayPal or Izettle, you can also borrow from them.
3. Delay paying suppliers – suppliers can be squeezed in an emergency they won’t like it, but it’s better than not being paid at all. Many bookkeepers pay suppliers before they are due to make sure yours isn’t it.
4. Inject more cash into the business – if your business is struggling then you may have to find the cash from friends, family or if you have any your own money – put this cash into the business temporarily but do so knowing the risks. If the business is likely to fail, it’s unlikely you will see this cash again.
5. Factor your debts – your cash is tied up in your unpaid sales invoices you can release this at a cost by factoring the debtors – 3rd parties will lend against your invoices– be warned though, this can be costly.
6. Reduce Stock – If your business is a stock-based business, your cash may be tied up in stock take a long hard look at your stock holding and see if any can be sold, possibly at a discount, to turn that stock back into cash.
7. Time to pay – if HMRC is your issue, then you can arrange a time to pay with them on certain debts – the sooner you call them, the better.
8.Cut Costs – are you paying for anything you don’t need to? If now is the time to reduce this cost in your business.
There are no magic solutions for overcoming cash flow issues, but a combination of the above may see you through.
Too Much Cash
“Why is too much cash a problem?” I hear you ask. The reasons are; first, that cash sat in a low or no-interest account is reducing in value and is costing you money and secondly, the cash is at risk if it sat in one account.
You need to think of ways of either spending your cash or making it work for you.
Spending your cash
We wouldn’t encourage you to frivolous spend your cash we would say invest back into your business – here are some ideas
- Invest in People – (See problem one about overcoming people problems)
- Purchase assets – would a piece of equipment make your business more efficient or increase productivity then invest some of the cash and do this.
Making the cash work for you
- Move the cash – don’t leave it in a business current account put it into longer-term deposit accounts across several banks – at least you will get something in return.
- Convert cash it into investments – cash has a low rate of turn mainly because the risk is relatively low but invest in something like Funding Circle or an EIS scheme to get a return. Investments that bear a risk to you will give you a higher rate of return.
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