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One in three businesses to fail in their first three years – read top tips to control cashflow and avoid financial mismanagement
In today's financial climate, closely managing the money in your business is more important than ever. However brilliant your idea or amazing your product, a solid financial base is what will keep your business going. Figures from the Office for National Statistics show that one in three businesses fail in their first three years, and poor financial management is one of the main reasons why.
As well as maximising profits and keeping costs down, staying on top of bills and invoices is also essential to maintaining good cashflow. It will help ensure that you've got some money in the bank, receive the most favourable terms from suppliers and don't get any nasty surprises.
If you don't get organised fast, keeping track of invoices you're owed and bills you need to pay can become both chaotic and daunting. Here are some tips for establishing the right internal processes to keep your cashflow healthy.
Keep good records
The key to keeping on top of bills and invoices is good record-keeping. Whatever system you use, whether pen and paper (alarm bells should be ringing), spreadsheets or, most reliably, accounting software, keeping good records from the off – although it's never too late – will help you stay organised and in control. Try things out and take advantage of free software trials to find the system that's right for your business.
The benefit of a proper accounting software package is that you'll have a snapshot of your company's financial situation at a glance. With instant visibility of who owes you what and when it's due, you'll be ready to jump on late payments before you run out of cash.
You'll also be able to keep your cashflow healthy by paying bills when they're due but not before, or by taking advantage of early payment discounts. Paying late could lose you credit and good favour with your client, something organised records will help you avoid.
Establish a routine
Monitoring bills and invoices is not something you should only do when your cash card gets rejected or you get an angry call from a supplier – by the time these things happen, the damage is already done.
Set time aside, ideally at least once a week, to manage invoices and make payments. It should be as much a part of your work routine as marketing or paying your staff.
Having this regular time will prevent bills and invoices building up and help you head off any emerging problems before they become too big. Never let this task slide down your to-do list.
Ask the experts
Even though you may have the best intentions of managing the books yourself, if you're floundering or just naturally disorganised, consider getting a book-keeper – it's a far better option than struggling on in chaos. Tools such as accounting software make it easy to collaborate with your accounting help so you don't need to relinquish control.
Your accountant or a book-keeper can also cast their expert eye over the way you do things to see how your processes for managing invoices and bills could be improved. Don't be afraid to ask.
Tighten up invoicing
• The sooner you send invoices out, the sooner you'll get paid. Make sure you have a system in place for sending invoices as soon as the work is done – software generates invoices which you can email out instantly, and online systems even allow you to invoice when you're on the move.
• There are several pieces of information you must include on an invoice – make sure your invoice is accurate every time to prevent any delays.
• Unfortunately, some people just won't pay unless you chase them. Make sure you track what's owed so you can follow up late payments straight away using the aged debtor report in your accounts package.
Send reminders and statements of account to clients so they know what they owe. If you know someone is regularly late with payments, you can even track the due date and send a gentle nudge before your invoice becomes overdue.
Organise your outgoings
• Consider implementing a purchase order system if you don't already. This helps you avoid the common and costly mistake of paying an invoice twice.
• You'll need to find the system that's right for your business, whether you file paid bills by name or date, but whatever you choose, make sure you are consistent in your method of filing so you can access documents and clear up any queries quickly.
• It might seem old school but it really works – use a stamp when processing paper invoices so you can quickly tick off when they have been authorised, recorded and paid.
Sally Revell is head of marketing for Intuit UK, maker of QuickBooks accountancy software for small businesses and accounting professionals.
What are your tips for other small businesses on staying on top of what you owe and what you're owed?
Also, don't forget to submit your entry now for the cashflow category of ourBest Practice Exchange. All entries that meet the criteria will be published online.
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