Cashflow management is a critical factor in the success of your IT business. We look at some of the most common causes of cashflow struggles, and how to address them.
We’ve all experienced it: you delivered your service on time – so why can’t your clients pay on time?! Even the most established and successful businesses struggle with late-paying clients. If only they’d adhere to your terms!
Here are some effective ways to tackle these troublesome tightwads!
Get a good credit control system in place
Your accountant can provide this service if you lack the resource or skills to do it yourselves.
Set up a direct debit system for your invoices
Encouraging clients to pay you by direct debit means less admin for them, and more regular payments for you.
Send invoices out promptly
When it comes to invoicing, don’t hang around. The more efficient your invoicing system, the better your cashflow will be.
Set reminders once the due date hits
Those invoices won’t chase themselves, you know! Some cloud-based accounting systems can send automated payment reminders. It’s a great way to save time and reduce admin.
Offer discounts for early payment
Incentivising prompt payment is a great way to speed up payments and get money in your bank where it belongs. Who doesn’t love a discount?!
Run credit checks on your customers first
It may seem obvious, but if you’re not doing your due diligence before taking on a new client, you could find yourself in deep water!
Your systems are in place and your clients are behaving – but you’re still struggling to pay the bills! Chances are you haven’t built up enough of a cash buffer.
Calculate how much of a cash buffer you have by dividing your cash balance by your cash outflows
Figures don’t add up? Time to make a change.
Renegotiate your supplier terms
Having a frank and honest discussion with your suppliers may be uncomfortable, but an in-person conversation can be an effective way to strengthen your relationship, improve their understanding, and make a change.
Have a cash-flow forecast in place
An accurate cashflow forecast is a vital document for any business. But producing a cashflow forecast isn’t enough! Make sure you regularly review and update it – preferably with your accountant, who can provide expert advice on how to improve your forecasts.
Rapid growth is great – but only if your systems and processes can keep up!
Identify your future business goals and determine your needs from there
Planning ahead is the best way to achieve sustainable growth. As part of your extended business team, your accountant can help you decide on your next steps.
Only hire when you absolutely need to
If you’re struggling to keep up with demand, recruiting can appear to be the obvious solution. But hiring new staff is a significant commitment. Can your business really take the strain? Speak to your accountant before you speak to your recruiter.
Having a good tech stack that grows with you is paramount
Smart software and clever apps are all very well – but is your tech capable of growing with your business?
It’s a cold, hard truth that undervaluing your service and undercharging as a result is one of the most common reasons for cashflow challenges – even among established businesses!
Check your profit margin is comparable to your industry average
Revisit your SWOT analysis. What are your competitors delivering, and how do they charge for their services? Is your offering in line with expectations? You may be able to charge more than the market average if you have a particular niche, approach or set of skills that others don’t offer.
Are you too busy and do customers accept your fees without question?
Being falsely over busy is a classic warning sign that it’s time to up your rates. Okay, so we’re not suggesting you go this far, but think of it this way: if you doubled your rates and lost half your clients as a result, you’d still earn as much… and have twice as much time! Food for thought, right?
It’s a tough challenge that most businesses will face at one time or another. But what should you do about it?
Is your marketing resonating with your customers?
Revisit your marketing strategy. Take a close look at your marketing. Does it connect with your customers? Ask a handful of trusted clients what they think. If they weren’t already working with you, would your marketing attract them to your business? Be prepared for the brutal truth!
Are there other external factors causing this problem?
It’s not unusual for fluctuations in the market and economic pressures to result in a downturn in sales. While it’s vital to be aware of issues within your market, it’s important to accept that there are some things you can’t control. Rather than worrying about factors that are out of your hands, try to focus on the things you can do to influence sales.
Have you overestimated your sales?
It’s a common mistake. For help and support with effective cashflow management, talk to your accountant.
Accountech Professional exists to help IT businesses get ahead – and stay ahead – of the competition. We provide a complete accountancy service to help your business get from where you are now, to where you need to be.
Need help keeping your cashflow in check? Drop us an email
activate@accountechprofessional.co.uk – we’d love to help.
Cole Accounting Ltd.