Category Archives: Cash flow

Making more money

When we look at our month end reports the first place we are drawn to is the net profit figure, this is a great place to start. Don’t forget though to look at your balance sheet and review how your net worth is doing. Once we’ve discovered how much we have or haven’t made or whether we have increased or decreased our net worth what next? Now we need to look at next month what can we do to improve those figures? Simply put you either need to increase your turnover or reduce your expenses and ideally both.

1. Increasing your prices

When did you last increase your prices? This can be the simplest way to increase your turnover it can be scary though what if all your customers leave? Let’s turn that on it’s head what if they don’t, do the maths on a 10% price increase and see if it’s worth a risk.

2. Open different/more hours

Are you open at a time that your customers and prospects can reach you? You don’t have to commit all your free time you could offer a Saturday, Sunday or late night opening once a month.

3. Engage with your current customers

When was the last time you sent out a newsletter to all your existing and previous customers? Like you all your customers are busy and will sometimes need reminding that you are around and how you can help solve their problems.

4. Engage with prospects

When I update the blog page on the website and share it via social media I see an increase in web traffic. Updating your content only works though if you let people know it’s there! Use Linked In, FaceBook, Pinterest, Instagram, Twitter, E-Mail, Texting and any other method that you have at your disposal to help people see the ways you can assist them.

5. Review your costs

Spend a morning or afternoon once a month just looking at costs. Check your utilities when are your contracts due for renewal and when is the cut off for cancellation? Could you save money by getting fuel cards for your vehicles? Ring around when your insurance is due for renewal not doing so could leave you paying over the odds. Are you getting the best rates from your suppliers give them a ring and see if you can negotiate a discount.

6. Do something different

If you aren’t making as much as you would like doing what you are doing then review your model. Are there any recurring revenues available in your line of work that you could offer to your customer base? Could you switch from hourly to fixed price billing? Could you diversify or work collaboratively with a complementary business in your local area? Try brainstorming in the office and see what comes up.

7. Set some SMART goals

If you know where you are this is a great start but without somewhere to head for you may just end up staying exactly there or going around in circles. If you’re not convinced then set one goal that is in line with your business plan. For the next month and keep it in your mind by reading it every morning when you start your day.  Remember is has to be SMART – Specific, Measurable, Attainable, Relevant and Timely. If it doesn’t work and you don’t see results e-mail me and let me know how useless point 7 was.

8. Change the way you invoice, accept payments and pay suppliers

Review your invoicing policy do you invoice immediately or with a set time delay do you bill in advance or retrospectively for larger orders could you insist on a deposit before accepting the order. Could you start to take online or card payments to get your money sooner? Do you pay suppliers as soon as you get the invoice? Check the terms you have and schedule the payment for the due date. If you have due on receipt terms with any of your suppliers call them up and ask for credit terms of 30 days or more.


Profit vs Cash flow

“But if we made that much why don’t we have more money in the bank?” is a common response I hear at the end of each month when I send out or meet clients to go through their month end reports. Hopefully the following will help explain the difference between Profit and Cash flow for small businesses.

Cash Flow is the imagesreal time stream of money in and out of your business. This is actual money in the bank, petty cash tin and till. Each day, month and year you receive an amount of cash and pay out cash. This is a real measure of how your business is performing and whether you will be able to pay your bills over the coming months. This is a very dynamic measure which also takes into account things that aren’t shown on the profit and loss report such as prepaid revenue, capital investment, receipts from debtors, sales of non current assets, payments to creditors, prepaid expenses, loan repayments, vat payments/receipts  and purchases of non-current assets.

Profit is income from selling your products or services minus all your expenses. These figures don’t take into account whether you have paid for the expenses or been paid for your services/product. This measure only looks at income and expenses at a certain point in time and takes into account such non cash measures as depreciation, accrued revenue, stock loss/gain, and accrued expenses.

In the real world you buy a retail item for £1000 and sell it for £2000 then you have made £1000 profit. If you have paid the supplier but haven’t been paid by the customer your accounts still show a profit of £1000 but your cash flow is £1000 down until the customer pays. Over time this situation becomes worse as you have to pay the VAT difference of £200 to HMRC meaning you are £1200 down in cash terms if you add in your utility bills, wages, advertising etc this can cause very real cash flow issues.


Positive ways to affect Cash flow

  1. Prepare cash flow projections * for the next month, quarter and year, if you are on shaky ground shorten this period to the next week. Knowing there may be cash flow issues coming up can help you to tackle them in advance.
  2. Invoice your customers promptly
  3. Review your invoicing terms and the timing of your invoices – If you are invoicing monthly items could you switch to invoicing on the first day of the month instead of the last.
  4. Don’t assume every customer has to be given 30 days. If someone asks for credit carry out a credit check to determine who should be given this luxury.
  5. If a customer has a bad payment record instead of turning them away insist on cash on delivery
  6. Ask for deposit payments at the time the order is placed
  7. Implement and maintain strict credit control measures
  8. Pay your supplies on time but not in advance of their terms
  9. Renegotiate your terms with your suppliers
  10. If you are going to pay a supplier outside their terms let them know in advance to maintain trust in the relationship
  11. Control your costs – review regularly what cash  is going out and how you can reduce this figure
  12. Bank money that you receive promptly
  13. Manage your stock levels – Don’t hold on to old stock get rid of it for the best price you can


So which one is more important? 

The answers is both are, your profit figure will give you a picture of how you business has performed that month and whether you are hitting your monthly & annual targets. Your profit is also the figure that your annual tax bill will be calculated on by your accountant.

Your cash flow reports will tell you if you are able to meet your financial commitments that are coming up over the next few months and keep the business running.

* Don’t forget when you are working on your cash flow projections to look at taxes, vat and one off expenses such as insurances which can make a huge dent in one months cash flow.

This article assumes that you are using Accrual Accounting which means that you record your income and expenditure in the month they happen. It doesn’t take into account when the cash is received or paid out. So if you invoice in January the income shows in the profit and loss report in January and the outstanding amount shows as a debt. When the invoice is paid in April the amount you are owed reduces but your profit and loss report isn’t affected.