How to manage your business effectively - Part 1

Mark Baird, Business Debtline Adviser at Advice NI, provides some key advice on how businesses can improve on the management of their finances during a three part interview with the team at NIBusinessInfo.co.uk.

Part one of our three-part interview focuses on the common problems that businesses face, and how to effectively manage cashflow to protect your business from running into difficulty.

What are some of the main issues that businesses contact you about - are there any recurring themes?

Business Debtline Service launched in September 2013 and since then people have been contacting us on a diverse range of issues. The three main reasons for people accessing the service have been due to: a) tax / HMRC issues, b) clients looking for advice on their rights and responsibilities in relation to problems with their bank, and c) clients who are under pressure from creditors.

We have helped callers across Northern Ireland with liabilities ranging from £500 to £5 million. The main businesses accessing the service have been from the retail, construction and agriculture sectors. This reflects the main industries that have been affected by the economic downturn.

How can businesses manage their cashflow effectively and proactively protect themselves from running into financial difficulty?

Cash is the lifeblood of every business - it must flow in and out to ensure your business survives. It is essential for all businesses to continuously monitor their cash flow.

My top tips to any business would be:

  1. Agree clear payment terms from the offset - If you don't state your payment terms to a customer, it is difficult to know when you will get paid. If your business does not know a payment is overdue, how can you manage your cashflow? It is good business practice to expect payment within 30 days. You and your employees are generally paid within 30 days and your own suppliers also need paid in that timescale.
  2. Invoice quickly - If it takes you two weeks to send an invoice, then it could take a further 30 days before that cash arrives in your bank account. Issue your invoice immediately. Think about using email. This will speed up the process and you will also have a record of it being sent.
  3. Make it simple - It should be easy for your customer to make payments, and easy for you to collect. Try to avoid being paid by cheque. This will involve extra administration and cause delays in the money arriving in your bank account. Accepting direct bank transfers or online payments are much better options. Consider collecting money from repeat customers through direct debit. It allows a business to scale without increasing the costs required to collect the debt. It also provides a stable inflow of cash.
  4. Don’t focus on profit at the expense of cashflow – Lack of cashflow plans is a common reason for early business failure. Many new businesses fail due to a lack of available cash, or problems collecting monies due to them. They might have been a profitable business eventually, but all businesses need to have good cashflow to survive, particularly within the first year of trading. If your cashflow is in order, your profit is more likely to be in order.
  5. Know your customer – Maintain good relations with your customers. If a customer does not pay bills on time, it is likely you will have a difficult relationship. Do not be afraid to ask for a deposit. This will help you limit your exposure in the case of slow or non-payment. Encourage good relations and fast payment with your regular customers. You could consider offering discounts if they pay within a certain number of days. This small gesture could encourage future orders from the customer, and subsequently greater profitability for your business.

- See more at: http://www.nibusinessinfo.co.uk/content/advice-ni-how-manage-your-busine...

Part one of our three-part interview focuses on the common problems that businesses face, and how to effectively manage cashflow to protect your business from running into difficulty.

What are some of the main issues that businesses contact you about - are there any recurring themes?

Business Debtline Service launched in September 2013 and since then people have been contacting us on a diverse range of issues. The three main reasons for people accessing the service have been due to: a) tax / HMRC issues, b) clients looking for advice on their rights and responsibilities in relation to problems with their bank, and c) clients who are under pressure from creditors.

We have helped callers across Northern Ireland with liabilities ranging from £500 to £5 million. The main businesses accessing the service have been from the retail, construction and agriculture sectors. This reflects the main industries that have been affected by the economic downturn.

How can businesses manage their cashflow effectively and proactively protect themselves from running into financial difficulty?

Cash is the lifeblood of every business - it must flow in and out to ensure your business survives. It is essential for all businesses to continuously monitor their cash flow.

My top tips to any business would be:

  1. Agree clear payment terms from the offset - If you don't state your payment terms to a customer, it is difficult to know when you will get paid. If your business does not know a payment is overdue, how can you manage your cashflow? It is good business practice to expect payment within 30 days. You and your employees are generally paid within 30 days and your own suppliers also need paid in that timescale.
  2. Invoice quickly - If it takes you two weeks to send an invoice, then it could take a further 30 days before that cash arrives in your bank account. Issue your invoice immediately. Think about using email. This will speed up the process and you will also have a record of it being sent.
  3. Make it simple - It should be easy for your customer to make payments, and easy for you to collect. Try to avoid being paid by cheque. This will involve extra administration and cause delays in the money arriving in your bank account. Accepting direct bank transfers or online payments are much better options. Consider collecting money from repeat customers through direct debit. It allows a business to scale without increasing the costs required to collect the debt. It also provides a stable inflow of cash.
  4. Don’t focus on profit at the expense of cashflow – Lack of cashflow plans is a common reason for early business failure. Many new businesses fail due to a lack of available cash, or problems collecting monies due to them. They might have been a profitable business eventually, but all businesses need to have good cashflow to survive, particularly within the first year of trading. If your cashflow is in order, your profit is more likely to be in order.
  5. Know your customer – Maintain good relations with your customers. If a customer does not pay bills on time, it is likely you will have a difficult relationship. Do not be afraid to ask for a deposit. This will help you limit your exposure in the case of slow or non-payment. Encourage good relations and fast payment with your regular customers. You could consider offering discounts if they pay within a certain number of days. This small gesture could encourage future orders from the customer, and subsequently greater profitability for your business.

- See more at: http://www.nibusinessinfo.co.uk/content/advice-ni-how-manage-your-busine...