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Five hacks for small business finances


With New Year upon us, it's a good time for small business owners to look at whether they are doing everything they can to manage their finances as effectively as possible.

Here's a few ideas to help make sure you are running a tight ship.

Avoid late payments

Regularly being left out of pocket by late payments can ultimately threaten the survival of your business. Don't let payments slide for fear of jeopardising good business relationships - they will add up and affect your bottom line.

Agree on clear payment terms when you sign a contract - it is reasonable to ask that payment should be made within 30 days. If a payment is late, send another invoice as a reminder (you can legally charge statutory interest as well, see here for how to calculate that:

If that doesn't work, a solicitor's letter usually helps settle the debt but if you don't want to get a lawyer involved, you can first try issuing a statutory demand (

If you still haven't been paid, you can take it further by applying to bankrupt or "wind up" the debtor's company, or by submitting a bankruptcy petition to the court - depending on how much is owed. But, at this point it is wise to get a solicitor or other third party advisory service involved.

The FSB's dedicated debt recovery platform ( can help you get your money back without heavy legal costs and includes up to 20 solicitor's letters a year.

Keep an eye on your cash flow

In addition to tackling late payments (see above), other factors can hit your cash flow, potentially threatening the survival of your business.

Make sure you are issuing your invoices on time and that you have a system in place to track payments, for example using software accountancy packages, rather than waiting until the end of the month to see what has been paid.

An online system can also issue invoices using a branded template, as well as professional-looking reminders to late payers. Alternatively, several banks will allow you to set up an alert on your mobile banking app for when payments come in.

Don't extend credit terms to your customers, without knowing whether they will be able to pay, using online services to check commercial credit reports. You might also consider using subscription-based cash flow forecasting software tools to predict your business's cash position so you can act accordingly.

And if you are in the position of making good profits - it's a good idea to leave some in the business for a rainy day - keep one third for taxes, one third for dividends and leave one third in the business.

For more on managing your cash flow, see here:

Update your business plan

Has it been a while since you last looked over your business plan? While most small businesses will give it a lot of thought at the outset, keep assessing and refreshing it to make sure your business's direction of travel is still clear, that everyone understands its priorities and that it takes into account any changes - including whether your assumptions worked out and what adjustments are needed.

Updating a business plan can help you step back from the day-to-day running of your company and look at things more strategically. The FSB's Dave Stallon says: "Look again at your Key Performance Indicators, especially your financial ones, and also think about mapping your digital business profile. Where things aren't working well, don't ignore it." 

Save money on your bills

While it may seem time consuming, switching energy suppliers can save hundreds of pounds a year and it's worth shopping around. Smaller insurance or energy providers may be able to offer a better deal. Using smart meters to digitally measure your gas and electricity readings means you can pay firms based on an up-to-date bill, rather than estimates.

And the real-time updates can help you see where you could be more efficient. It may lead to reinforcing messages to staff about turning off lights and closing doors to keep in heat - or it may flag up issues with insulation or inefficient heating systems that could be addressed. Rising energy costs have to be absorbed by business owners, meaning less money to invest, so it's worth trying to reduce consumption where you can. 

Don't pay too much to access finance

Among the small percentage of small firms currently applying for external finance, most tend to approach one of the big four banks who control 80% of the commercial loan market.

But since the 2008 credit crunch, it has become more difficult for small businesses to get finance this way and a vast array of "alternative finance" options have emerged, some fuelled by people's readiness to do more transactions online including crowdfunding and peer-to-peer lending.

Not all will be suitable for every business and each will have their own risks and rewards but it's worth investigating the options. Smaller lenders too may specialise in particular areas and can make lending decisions based on insight into that business.

Check out independent websites like the British Banking Insight or check out the FSB's FCA-regulated online funding platform, which can help narrow down your options.