Lee Murphy is the founder of Pandle (www.pandle.com) the cloud bookkeeping software specifically for small businesses and the self-employed.
Neglecting your books because you are too busy dealing with the everyday job could be disastrous for your business finances.
Cashflow problems are the biggest killer of small businesses, with recent research showing over 70% of SME owners see it as their biggest threat.
It is easier today than ever before to avoid financial problems thanks to online bookkeeping software, many of them free.
Here are some tips on how to manage your finances efficiently to ensure future business success.
Don’t mistake the business’s money for yours
Be rigorous about keeping your bank account separate from your personal finances.
It may be tempting to dip into the business account for personal luxuries when things appear to be going well, but remember much of this money may not be your’s… it is probably the taxman’s. Only take out what you can afford after analysis of future bills and tax payments.
Growing too quickly
Many businesses that go bust are profitable but have hit financial problems through taking on too many projects or employees, causing their cash to run out before payments have been received. Keep a tight control of sales, have an up-to-date cashflow forecast and keep an eye on how new projects affect your cashflow so you can head off problems before they start.
Beware big customers
It can be easy to become over reliant on one or two clients with plenty of repeat work. What happens when the work dries up? The risk is that they will disappear leaving you with high overheads and potentially large debts. Ensure you reduce the risk by diversifying your client base.
Be hot on payment terms and collecting
If a customer takes 69 days to pay, the average wait for many businesses, you carry the materials, staff and VAT costs for at least two months before getting paid, a big burden on any business.
Instead, get as much money from customers up front or otherwise request payment in phases. Start chasing invoice with gentle reminders before they are due. We all hate chasing, so automate this with your bookkeeping software. Chase promptly by phone and email as soon as they are due.