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Stay on top of your finances

Lee Murphy is the founder of Pandle


When running your own business it is easy for daily problems to get in the way of “boring bookkeeping”, with many putting it off until the end of the month or even less frequently.

Unfortunately, neglecting your numbers will ultimately cause serious problems for your business and own finances, particularly as many common financial problems are foreseeable, and some are inadvertently self-inflicted.

Cashflow problems are the biggest killer of small businesses, with recent research showing that over 70 per cent of SME owners see it as their biggest threat.

Here are key financial challenges that small owner-managed businesses face, and how to mitigate or avoid them:

Don’t mistake the business’s money for your own

It is easy to think things are going well, especially when there is lots of money in the bank, so you dip into the business bank account for life’s luxuries and emergencies. But running your business only based on looking at the bank statement is heading for disaster as much of this money may not be yours.

Be rigorous about keeping your business’s finances secure by only paying what you can afford after a thorough analysis of future bills and tax payments.

Apply the 80/20 rule to your customers

Often 80 per cent of your time will be spent on 20 per cent of your customers but problems arrive when it is low-spending, unprofitable ones who are the most demanding. Yes, you don’t want to turn away money, but you may well be making a loss on them once all the costs are considered.

Either way, they are holding you back by consuming your time. Make sure you know who they are, for instance through analysing timesheets and their spend. Aim to get rid of them!

Don’t grow 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. Keeping a tight control of sales, and checking their impact with your cashflow forecast, is key to avoiding this avoid this, especially when you are putting in low prices to gain volume.

Beware big customers

It is easy to end up with one or two big clients. Great in the short term, but they are a huge risk as they will inevitably disappear leaving you with higher overheads and potentially large debts… just think of Carillion’s suppliers.

Keep an eye on such customers, especially any accounting for more than 20 per cent of your income. Ensure you reduce the risk by diversifying and getting a broader client base.

Be hot on payment terms and collecting

If a customer takes 70 days to pay, which is the average wait for many businesses, you have to 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 upfront or in phases. Start chasing invoices 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. 

Remember, the older an unpaid invoice gets, the lower your chance getting paid.