Part 2: Managing Cash Flow
Welcome to the second part of Houzz Pro ‘Hot Topics In Financial Management’ series of articles and webinars, in which we’ve partnered up with Raj Singh, a financial expert from 5 Rivers Accountancy, to bring you practical knowledge and actions that will help improve your firm’s finances.
In our second article and webinar, we look at how to effectively manage your cash flow, and how well established cash flow can help protect your business against any unforeseen issues, as well as inform potential business opportunities.
Read on for valuable financial tips, and click to watch the webinar for more brilliant advice.
1. Invoice promptly
It’s all too easy to forget sending that invoice to a client or contractor when your days are incredibly busy. However, by making invoicing part of your daily routine, you’ll stay in control of your finances, give your clients the appropriate time in which to pay and ensure your cash flow stays consistent.
Top tip: With efficient management software, such as Houzz Pro, you’ll be able to send professionally branded invoices from anywhere at any time, ensuring you get paid regularly.
2. Negotiate payment terms
Clear and concise payment terms will ensure your client knows whether they must pay within 60, 30 or even 7 days. The payment terms are up to you, however, the shorter the payment period, the quicker you get the cash into your business account.
3. Add early payment incentives
To encourage clients to settle their invoices quicker, you could offer payment incentives, such as a 5% discount of their total bill if they pay within 30 days rather than 60. This not only brings in the cash quicker, it prevents you having to take out any finance or loans to bridge gaps.
4. Negotiate with your suppliers and pay on time
As you begin building a reputation for your business and pay suppliers on time, you’ll be able to open trade accounts, allowing you to negotiate more flexible payment terms, and not just upfront payments that can affect your cash flow. Paying suppliers on time also ensures you’re doing your part to keep the industry flowing efficiently.
Top tip: Regularly review your business’ profitability by considering what areas are generating more profit versus what areas have lower gross margins. For example, taking smaller jobs at a higher profit margin may be more effective than spending time on pricing up larger, more competitive jobs that you might not win. By keeping a close eye on your cash flow, you’ll be able to spot trends and pivot towards the more profitable operations of the business.
5. Save for your tax bills
It’s good practice for small businesses to put aside between 20%-30% of your gross income in preparation for the tax bill at the end of the year. That way, you’ll have a substantial amount of savings to pay the bill on time, without incurring any late payment fees.
For more valuable tax information, watch our first webinar in the series that offers brilliant tips on being tax efficient and how to save money through your business.
6. R & D
If you’re a small business or sole trader and you have been involved in improving or developing new products or services that have helped build innovation, such as green technology, then you’re entitled to claim back R&D spending (research and development) on the relevant costs of that improvement. From April 2023 onwards, the allowance you’ll be able to claim back on R&D costs will be 18.6%, however, if you haven’t claimed any recent R&D costs, you can look back at the past two years and claim 33% on any R&D spending.
Don’t miss the informative webinar that accompanies this article, where financial expert, Raj Singh, offers up valuable nuggets that will help maximise your cash flow.
For more help with managing your company’s finances, check out Houzz Pro here.
The information contained in this article should not be relied upon as legal, business, or tax advice. We encourage you to seek guidance from your legal counsel, business or tax specialist with regard to how the information contained in this article may or may not apply specifically to your business.
