Reset for success
How to keep your business afloat through challenging times?

Over one in five UK businesses say the current economic uncertainty is negatively affecting their turnover, a recent report from the Office of National Statistics reveals. Resetting your business finances in challenging times basically lets you take stock of where you’re at, review your cash flow forecast (or create one if you haven’t already), and find ways to cut costs, so you can continue to meet your commitments and stay afloat. It’s also a good time to make a plan to deal with upcoming payments like your tax bill. These steps can all give you the clarity needed to strengthen your financial position and ride out the UK’s economic turbulence in one piece. And if you need expert help, Naail & Co. provide accountancy, taxation and support services to help you achieve your financial goals. 

Prepare a cash flow forecast 

Understanding your cash flow forecast will help you assess the nature and scope of the money problems you’re experiencing. Your cash flow forecast is essentially an estimate of how much cash your business expects to receive in and pay out in the future based on past performance. So, you’ll be able to spot future times when you’ll be low on cash, and plan for how you’ll cope with them. But, if you don’t actually have a cash flow forecast in place yet, don’t worry. You can prepare one in just a few simple steps.

To begin, decide on the exact time period you want to forecast. This can be anywhere from a few weeks to several months, or even years, although one month is probably most common. If your business is several years old already, you’ll have past years sales data to work off of. But, if you’re still a fairly young operation, you likely don’t have a large dataset to help you predict future sales, and the longer you make your forecast period, the less realistic it’ll therefore be. So, a month’s forecast will likely be easiest to get accurate in this case. 

Calculate total incomings and outgoings 

Next, list all your total income for the month. This should primarily include your sales, which you can potentially estimate based upon past figures if you have them. Only cash in the bank is relevant to your forecast, so work off of invoice due dates (or when the payments will clear) rather than when you send your invoices. As for the rest of your income sources, remember to note things like grants, loan payments, and tax refunds. Your net income is then the sum total of all these figures. 

You’ll then need to also list your outgoings. So, make a list of the amounts you’ll spend for the month on: assets, loan payments, rent, tax bills, investments, and wages/salaries. Add up all your outgoings to get your total net expenditure. 

Calculate your cash flow

The final step is to calculate your operational cash flow. Simply subtract your total outgoings from your total net income. Hopefully, you’ll be left with a positive cash flow, which means more cash is coming in than going out. This may mean you have enough spare cash that you can use to invest or grow your business. A negative cash flow, on the other hand, means the opposite: you have more cash going out than coming in. While a negative cash flow isn’t always bad news for your business profits in the long term, it does mean you’re spending money faster than you’re getting paid.  

Once you’ve finished your forecast, it’s also useful to return to it and see how accurate your predictions were compared to your actual cash flow for the month. This lets you spot any discrepancies between real and estimated, so you can edit your forecast if needed to improve its accuracy.  

Find ways to improve your cash flow 

Nearly 50% of UK SME business owners say they’re experiencing cash flow problems that make it difficult to cover essential business costs. So if you’re having these sorts of problems and your forecast contains too many weeks where your cash reserves will run dry, you’re certainly not alone. Fortunately, you can make smart changes that allow you to keep bringing enough money in, so you can continue to meet your financial obligations. So, for instance, if you find your customers are generally too slow with their payments, encourage them to pay early. That means you should make deliveries as soon as possible and send invoices right away. And always require a deposit for big orders. It’s also useful to provide customers with many ways to pay like credit cards, debit cards, and PayPal. Flexible payment options make it easier and more convenient for customers to pay promptly. 

If the payment due date’s come and gone with no payment made, don’t hesitate to chase it up. Message the customer roughly 48 hours after payment was due, and politely remind them. Ask if everything’s okay with the invoice, and if they need anything else from you in order to speed things up. You can also establish late fees to encourage customers to pay on time. For instance, once an invoice is thirty days overdue, you could add 2% interest for each day the payment’s late.   

Assess your assets, sell what you no longer need 

You may also need to consider selling assets to cover any shortfalls. So, assess your assets (like old equipment or excess stock) and see if there’s any you no longer need. In addition to boosting your cash flow, asset sales can also help you save on extra costs like insurance and storage that previously ate into your cash reserves. Alternatively, if you do need to invest in new assets, you can always consider leasing rather than purchasing them outright. Leasing means you won’t have to pay the full-cost of the equipment upfront, so you don’t have to use up your cash or take out a loan. This also gives you the opportunity to access the latest cutting-edge equipment that may otherwise be out of your usual price range. And since interest rates for equipment rentals are typically fixed, it’s also fairly easy to fit these payments accurately into your cash flow forecast.

Cut costs where possible 

When times are tough, penny pinching becomes a necessity for survival. So, find ways to cut costs as much as you can. For instance, make a list of products you buy on a regular basis, and shop around for cheaper prices. And, remember: if it turns out your business doesn’t actually need something, don’t buy it in the first place. You can also ask your suppliers if they’re able to reduce their prices at all. In some cases, suppliers will be willing to offer discounts to their loyal, long-term customers. 

Negotiate lower prices with suppliers

Before negotiating with your suppliers, it’s always useful to first research the wider market to get an idea of how competitive their prices are. Then, determine how much you’d ideally like to pay, but it’s also worth asking for an even cheaper price than you actually expect to get. You may be offered a discount on the condition that you’re able to pay in cash upfront. So be prepared for this potentiality and check whether this is something your cash reserves allow for before talking with your supplier. 

It’s also useful to ask if the supplier’s willing to commit to a fixed price over a set period of time (say, six months or one year). You can then be confident your deal is going to have a positive impact on your cash reserves. And, always remain friendly and respectful during the negotiation. Remember, your supplier is running a business just like you are, and they won’t be able to make any deals that hurt their bottom line.  

Save on energy 

You can also reduce your energy use to save money. Take care to switch machinery off when it’s not in use, for example. The same goes for lights. Lighting typically accounts for over 20% of energy used in commercial buildings. And, it’s not uncommon for lights to be kept on in corridors, meeting rooms, and storage cupboards when they really needn’t be. So, put up signs that remind employees and cleaners to switch off lights when they leave the room to help cut energy costs. 

The UK’s now two years into an energy crisis with wholesale electricity prices reaching record highs in this time. And, unfortunately, the recent Ofgem energy price cap doesn’t apply to businesses. So, energy conservation is crucial for saving money. Overseas, Canadians are facing similar challenges. Electricity prices increased by 11% in Canada within the last year, and more than doubled in Alberta, in particular. Energy-efficient practices are therefore a key way Canadians can recover financially and save money. 

Deal with your tax bill

Although it’s tempting to use the money you’ve set aside for tax payments for other more pressing expenses, this’ll come back to bite you when that payment becomes due (by midnight on 31st January and 31st July, usually). You can also work to keep your tax bill as low as possible by making a claim for absolutely every business expense possible — regardless of how big or small the expense may be. As long as the expense was solely used for the everyday running of your business, you can claim for everything, such as office equipment, travel expenses, and marketing costs. Note, however: you can’t claim for expenses that were used for both business and leisure purposes. For example, if you took a business trip, which you then extended into a vacation, you can then claim for the business days only.

Tight record-keeping becomes crucial here. If you don’t have a reliable record of your expenses, the HMRC has the right to reject your expenses claim. So, if you don’t already do so, take care to keep physical and digital receipts of all your business expenses. You may actually find it useful to record your expenses in a spreadsheet, which you can update as needed throughout the year. So, then once Tax Day rolls around, it’ll be much easier to reference and input your expenses when making a claim.

Can’t pay your tax bill? Try a Time To Pay arrangement  

If you find yourself unable to pay your tax bill on time, a Time To Pay arrangement with the HMRC can give you more time to pay your outstanding taxes. Usually, this arrangement will give you an extra six months to make the payment in staggered installments, although a term of up to twelve months may also be possible. Extra charges will also not be added to your tax account balance during this time.

There’s a set criterion you need to qualify for in order to be eligible for a Time To Pay payment plan. Specifically: you must owe £30,000 or less; have filed your last tax return; and you can’t have any outstanding debts or payment plans with the HMRC. You’ll also have to put forward a strong case that shows you deserve to be granted this arrangement. So, that means you need to provide the HMRC with a realistic estimate of how much you can afford to pay and over what time frame. You’ll need to show them your cash flow forecast for the next six months, and detail the cost-cutting strategies you’ll implement to help you make the payments. Take care not to over-promise how much you can afford to pay, and be sure you can stick to the payment plan before you agree to it. 

When times become tough for your business, it’s important to hit the reset button and take action to prevent going under. Preparing a cash flow forecast, finding ways to cut costs and strengthen your cash reserves, and dealing with your tax bill are just a few smart steps you can take to take charge of your financial situation. You can then successfully weather the storm and look forward to better days ahead.