According to figures collected by the Federation of Small Business, there were 5.6 million small businesses at the start of 2018 in the UK. Small businesses accounted for 99.3% of all private sector start-up businesses at the start of 2018 and 99.9% were small or medium-sized (SMEs).There were 1.4 million employing businesses and 4.3 million non-employing businesses. Therefore, 75% of businesses did not employ anyone aside from the owner(s).What makes or breaks a new start-up business, regardless of size or how many people are involved, is their ability to generate and maintain a stable cash flow. One of the main reasons why a small business will fail in its first couple of years of operation is through having a poor cash flow where a good balance of money is flowing into your business at a greater level than what flows out in overheads, such as for staff wages, supplies, business expenses, rent and utility charges etc.
Why your invoicing schedule is important
Believe it or not, there are lots of small business owners that don't actually invoice their clients each week – or even each month!A lot of small business owners are sole traders or solo-entrepreneurs that operate a 'single-person' business where the responsibility of invoicing falls onto the shoulders of the sole owner, as well as every other business-related and administrative task, needed to run their company.The lack of available time to keep up with a regular customer invoicing system is one reason why a small business owner can fail to maintain good cash flow. When you are the person that is doing all of the work, then your financial and administrative tasks will take a back seat should an urgent order come in from a customer that needs your attention.In some cases, business owners are not invoicing until three or four months later after they have completed their work or delivered on the customer order. This can be a fatal mistake to make when trying to run a business.
To establish and maintain a healthy cash flow for your business you need to be invoicing promptly while offering reasonable payment deadlines. You then need to ensure that you chase up any outstanding invoices as quickly as possible once their payment deadline has lapsed.Admittedly, this can be a mammoth task to perform and manage for a single-person business, especially when you cannot afford to turn down work or new customers coming in to be able to fit in managing your invoices.
Tips on invoicing your customers
There are a number of ways to try to keep your cash flow steady when it comes to invoicing your clients or customers. Sending prompt invoices is a good start, so send them immediately as soon as you have dispatched a customer order or completed a job of work that you have been hired to perform.Depending on the nature of your work, you could look at ways to secure payment upfront, or at least a deposit or part-payment. Doing this will mean that you will have some cash reserves to purchase the stock or materials you need to start.For example, if you offer a service that may take some weeks to complete, you can ask for an upfront deposit to retain your services. Halfway through your contract, you could seek a further part-payment that will see you comfortably through to the completion of your project.
Offer monthly payment plan options
Again, depending on the nature of your business, you could look at the possibility of setting up a monthly or even quarterly payment plan for your services, or for a regular supply of stock or product that you sell all-year-round.There can be some comfort in knowing that there will be some regular payments flowing into your businesses coming from a monthly or quarterly payment plan that your customers have signed up for in advance.Payment plans or business subscriptions are also a great way for other small business owners to buy your products or services in small, regular payments without it drastically affecting their own cash flow or completely draining their cash reserves.
Discounted prices for annual purchases
Taking the time to sit and invoice each and every customer you have on your books each week or month can be a tiresome task. If your business attracts customers that will be repeat buyers or needs a consistent supply of goods and services throughout the year, rather than invoicing them each month, it may be more viable to offer them a tempting upfront offer instead!Offering larger companies that have a healthy cash flow system an annual payment option, with a tempting price reduction or discounted rate, can be more advantageous than individual monthly invoicing.The company will be tempted in by a reduced price when compared to the monthly price for your services, plus you will get an up-front cash injection that could provide a very good boost to your business cash reserves.Plus the fact that having annually renewing customers means that you will only have to invoice once per year per client! That is better than trying to find the time to invoice each customer twelve times per year.
How to avoid bad debts
The only way your business can avoid bad debts is to keep a positive cash flow. Having a negative cash flow can do serious harm to your business, especially in situations where you will struggle to pay for essential supplies that you need for your business to operate.If you fail to pay the suppliers that you rely on, as well as a failure to pay your utility bills that are essential for your business to function, you will see your business crumble in the long run.
Let's look at some ways to improve your business cash flow and to avoid bad debts:
- Prompt invoicing
- Taking upfront deposits
- Taking payment part way through your work
- Chasing up outstanding invoices quickly
- Adding a late-payment interest charge to outstanding invoices
- Offering monthly, quarterly or annual payment plans
- Setting up different payment options: PayPal, card payments, bank transfers
Other ways to improve your business cash flow
To make sure that you can dip into some emergency cash during times of need, you can talk to your bank about setting up flexible overdraft options.You could also look at freeing up your time to dedicate towards better management of your invoicing system:
- You can simplify your invoicing by using online accounting tools such as QuickBooks for example. They offer online bookkeeping and accounting services for small business owners and the self-employed.
- Free yourself from your most time-consuming administrative tasks such as answering your business phone and sorting out your business post by outsourcing these tasks to Capital Office London. You can choose from a Complete Virtual Office service to individual virtual services such as Unlimited Call Answering or mail forwarding options at very cost-effective prices to help free up your time.
Remember, this is your own business – your pride and joy! You have worked hard to build this from the ground up, so don’t be negligent when it comes to managing your business cash flow.