Why do I have a poor cashflow and how can I improve it?

Desperate times asks for desperate measures…unless you plan better and then the measures are smart. 

Having a poor cash flow means you don’t have sufficient income to cover all your expenses. The pandemic and rising inflation emphasised the need to reassess the way we do business and  plan better for any unexpected changes. But what do you need to consider?

Do you have an inventory plan?

Holding too much stock ties up cash which can be used elsewhere, but you also need to have enough stock to meet the demand. Therefore, having the optimal amount of stock can be key in improving your cash flow. 

Current circumstances highlights even more the importance of having a process in place to identify the stock items that are critical to your business and build an inventory plan which considers potential risks due to unforeseen circumstances (such as Covid 19, rising inflation, etc,). Are you taking these risks into account?

When was the last time you analysed your customer portfolio? 

The vast majority of businesses have been hit by the pandemic, and yes some of the customers might not be able to pay you at all. This is why you need to identify the accounts in your portfolio that may encounter further liquidity problems due to Covid-19. 

By assessing and categorising your customer portfolio, you can improve your collection strategy and where possible renegotiate the payment terms or introducing payment in instalments.

Have you considered negotiating payment terms with your suppliers? ‍

The vast majority of suppliers have standard terms that their clients don’t bother to negotiate. But, in these difficult times in particular, it’s worth studying them. 

However, it can be time consuming to try to negotiate with every supplier. Instead, you could identify the companies you spend most monies with as this will give you a better position to negotiate or even look for an alternative one which can give you a better deal.

This is a good time to consider if you can negotiate a better deal for yourself, with more time before you have to make a part or full payment.

Are you aware of you upcoming tax liabilities and can you pay?

If you are experiencing cash flow problems and have fallen into arrears you can negotiate a Time to Pay (TTP) arrangement with HMRC in order to pay the outstanding tax bills in instalments.

It can be used for  Corporation Tax, VAT and PAYE arrears, but also when directors anticipate cash flow problems with upcoming payments and it may help the company to avoid a late payment penalty if they miss the deadline.

However, HMRC will consider every arrangement on an individual basis and will also consider the company’s history of tax repayment. This is to ensure  that directors are not deliberately trying to avoid meeting their tax obligations. 

Lastly, speak to your accountant

Now more than ever you need that extra pair of eyes to understand what is really going on in your business and help you plan for any unexpected changes. 

Vision Accountants can review your every transaction, which means you will have access to  information to measure how your business is going in real-time rather than waiting until the end of the financial year.

What are the benefits of monthly management accounts? (why should I do it?)