As a small business owner, you don’t need us to tell you that you’re the one steering the ship. To do that effectively, you need to understand the money coming in and out of your business. These ingoings and outgoings are known as your business’s cashflow.
In order to plan ahead and make confident business decisions, you need to both track and fully understand your income and expenditure. Here are three ways you can stay on top of your cashflow - and keep that ship heading in the right direction.
1. Keep on top of your invoices and expenses
A clear picture of your cashflow starts with a deep dive into your admin. It never hurts to double-check that your invoices are accurate, as a first port of call. The last thing you want is to be missing out on income due to errors in your invoices.
Next up, make sure you’re up to date with what’s been paid and what you’re still owed. It can also be helpful to know who your consistently late-paying customers are, so you can prepare for the impact they might have on your cashflow. Investing in accounting software that can tell you who your slowest-paying clients are and even chase unpaid invoices for you can help alleviate that pressure.
As well as your invoices, it’s important to stay on top of your day-to-day business expenses. It can be tempting to stack them up - physically or figuratively - to organise at a later date, but if you don’t know exactly how much money is going out of your business on a daily basis, it’s difficult to get a clear picture of your cashflow.
2. Think about opening a business bank account
While it’s mandatory for a director of a limited company to set up a business bank account, it’s optional for a sole trader or a partner in a partnership. Even though it might not be a legal requirement, separating your personal and business finances can make life much easier.
With the increased use of contactless payments, mobile wallets and online payments, manually sorting through which transactions to record in your business accounts can be tedious and time-consuming - not to mention the increased potential for errors. Instead, you could give yourself peace of mind and get valuable time back by using a dedicated business bank account.
3. Use a cashflow forecast
A cashflow forecast is a projection of how much money you expect your business to receive and pay out over a set period of time. It can help you to assess how financial decisions may affect your business and to plan ahead strategically.
FreeAgent’s Cashflow feature automatically builds a 90-day cashflow forecast for your business to give you valuable insights into the upcoming months. To create a cashflow forecast that looks further into the future, you could consider building your own longer-term cashflow forecast.
Take a closer look at FreeAgent’s Cashflow feature and start your 30-day free trial today.