Posts Tagged ‘Cashflow’

Cashflow is the lifeblood of any organisation. Getting it wrong means that your business will fail, but getting it right at a time of economic uncertainty is a significant challenge.

Having a healthy cashflow is crucial for all companies, but can have a massive impact for start-ups. A new business can only survive for a short time with a negative cash flow, and ultimately the business will end up insolvent. Start-ups must adopt processes to help manage their cashflow from the moment they are set up.

Late payments are a significant problem for entrepreneurs to deal with. Half  of the small businesses polled by Sage in its monthly Omnibus said they had been impacted by late payments over the last twelve months.

For start-ups waiting to improve their business cashflow, there are a number of steps to take, including:

Know where your money is – It sounds simple, but a lot of small businesses will fail because their owner doesn’t keep a close eye on the funds coming in and out of the business. That visibility is best achieved by maintaining regular updates on your cashflow forecasts.

Know your customers – Many businesses have a set date for paying invoices, learn when these are for your customers and record the date. If the date passes and you are yet to be paid, then there is a good chance that something is not right and you can follow up with your customer.

Set-up an online automated contingency plan – This will help you actively manage your cashflow. It is critical that start-ups remain aware of how much money they are owed and when payments are due, so that late payments do not occur in the first instance. However, if they do occur good management can ensure the late payment does not have a damaging effect on the overall cashflow. These are all aspects that business accounting software can help you get to grips with.

By implementing theses correct processes a start-up will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues. By following these guidelines and implementing the right software, businesses can make sure they remain strong and cash positive.

Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland.


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When to register for VAT

There are many excellent articles around on when to register for VAT, including the one on the Start Up Donut, so I’ll try not to repeat what is already available.

So, you’ve recently set up or are about to start your business and you want to know what to do about VAT. You should do this when you draw up your business plan and cashflow forecasts, because it could affect your profitability.

What’s the first thing you need to do? Find out the VAT treatment of what you’re selling. The key questions are: would you have to charge VAT if you were VAT-registered? If not, is that because your supplies are exempt from VAT or zero-rated?

This latter point is an important distinction. In simple terms:

  • if they are zero-rated, you can reclaim VAT you pay on your expenses.
  • if they are exempt, you won’t be able to register or reclaim the VAT on your expenses.

If you fall in the latter category, there’s no need to read on.

Otherwise, what you do is liable to VAT at 0%, 5% and/or 17.5%. How do you work out when to register?

The registration limit is based on the value of your taxable supplies (ie the value of what you’ve sold that attracts VAT, in the past 12 months).

Keep track of this by recording at the end of each month what your taxable turnover has been. Add up the past 12 months to see whether you’ve gone over the registration limit. If so, you need to apply for VAT registration within 30 days of the end of the month in which your turnover went over the limit.

If you went over the registration limit in less than 12 months, you should still apply to register at the end of that month. Don’t wait for the end of a 12-month period or you might find yourself liable to a penalty.

Should you apply to register for VAT before you go over the registration limit? That’s a very difficult question to answer and one that can only be determined by you with help from your advisers. There can be benefits to being registered for VAT, particularly where you customers are wholly or mainly businesses that are VAT registered. They will be able to recover the VAT you charge. Some suggest that being registered gives your business a certain credibility, after all, who would register for VAT unless they had to?

One thing that makes this decision a bit of a no-brainer is if you are only selling things that are zero-rated because you will get back the VAT on your expenses, but not have to account for VAT on your sales. This way you get paid by HMRC when you put in a VAT return. The only thing you should consider is whether you will be claiming back enough VAT to make the hassle worthwhile.

Robert Killington, VATark


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Last month we talked about starting a business on very limited resources. This time, I would like to think about the problem of having too much time or money.

Having too many resources can distract you. In contrast, when money is tight, you’re focused on just doing what is truly important. In any start up situation, you should only care about discovering two things:

  1. What customers want and your capacity to deliver it.
  2. How to get it into the customer’s hands at a cost that makes a profit.

Cracking the above two points and then becoming cashflow positive is the surest route to business success. Failing to focus on this is the surest route to failure, whatever the bank balance. I speak as someone who has not only started their own company, but who has invested in a variety of start ups, some with tremendous success, and one that has been an abject failure.

Two of my investments (actually the ones with the most potential and both of whom have raised millions), are also teetering on the brink of failure. The reason? Too much money, with one having raised more than £10m over several funding rounds. Having too much money encouraged both to try and tackle multiple markets before they had fully established themselves in one. It made them feel that becoming cash positive was an optional extra. After all, they could always raise more capital. And they seem to pay enormous salaries, far above what I pay for higher caliber staff in my own business.

In my opinion the lesson is simple. Focus your efforts on providing what is wanted. Then deliver it at a profit. Don’t do anything else. Becoming profitable as fast as possible makes long term success much more likely.


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I set up my first business during the recession of 1990. At the time I was given some great advice, though initially I didn’t fully appreciate its value. I thought it might be useful, given the current economic climate, to pass this advice along…

“If you enjoy something and are good at it, don’t go into business to do it. Go into business so that you can do the thing you enjoy and are good at.”

It took me a while to figure out the gem of wisdom here. Excited as I was to be setting up my own business, and taking control of my own destiny; what was motivating me was that I would be doing something I enjoyed and felt I was good at. The problem with this is that it puts the “going into business” aspect of your new venture into second place. Whereas it should come first.

You may be a good web designer, or chiropractor, or recruitment consultant, or even helicopter pilot. But if you are not prepared to be a good business person, you best stay on someone else’s pay-roll. Or if no one is prepared to pay you to be a web designer, chiropractor etc keep these skills as a hobby.

You need to be thinking “I am going into business and will be a business person first.” A by-product of your business is that you get to do something that you enjoy. If you do not focus on being a business person first: areas such as cash-flow, sales, market research, administration etc. are likely to come second to the delivery of your product or service. And those wrong priorities can easily lead to business failure.

Now, I am sure that you are a good web designer, or chiropractor, or recruitment consultant, or even helicopter pilot – but what makes you think you are a good business person?


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People often over-analyse starting up a business. As PricewaterhouseCooper’s Nigel Reynolds explains, in the early days, it really is all about cash flow – cash is king.

Now more than ever, business owners are concerned about managing cash – but you simply can’t think about money coming in with a short-term frame of mind.

As a small business owner in this current economic climate, what is your number one strategy in retaining customers and encouraging stable growth in the medium to long term? How far ahead to you consider when trying to grow your business?


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One of the first things you need to do when you set up your own business is to find yourself a good accountant. However simple or complicated your business’ finances are, you are going to get yourself in a muddle if you don’t know exactly what you need to record, how to fill in your tax returns or when to file your accounts.

Speaking to the Institute of Chartered Accountants in England and Wales (ICAEW)’s Clive Lewis the other day, I learned that many start-ups don’t use their accountant as much as they could or should.

You should be able to rely on your accountant to be there for you if you call up with a query about your book-keeping, however trivial it may seem, or if you have a sudden change of circumstances – for example if a client suddenly puts in a big order and your cashflow is thrown off-balance. They should also be reminding you of deadlines for self-assessment or, if you’re a limited company, when your accounts are due to be filed.

There is certain information your accountant will need from you in order for him or her to understand your business and do your accounts for you, too, but again, a good accountant will tell you what they need. According to Lewis, your relationship with your accountant should be a long-term one with regular contact.

Ask other business owners you know who they use, or visit one of the accountancy associations’ websites to do a search for your local accountants. Even if you have a good brain for maths, you still might need somebody to hold your hand while you work out how to use your new accountancy software. Ideally, you will choose an accountant who has previously worked with other businesses of your size and in your industry.

So, don’t be shy; pick up the phone and ask away. And if the person at the other end doesn’t want to help you out, take your fees elsewhere and find an accountant who will make life easier for you.


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My friend Juan is a superb designer – mainly Flash-based websites. Way back in the mists of time I gave him his first design studio job. Now he is self employed and his talent means he can charge a premium and work on interesting projects.

But he is terrible at getting paid. Sometimes his invoices are 4 or even 6 months past due before he chases payment. He’s not interested in business administration because he is focussed on doing good work for his clients. I pointed him towards bytestart  – one of my favourite SME websites – for some practical tips on getting the cash in. I also found a helpful video explaining credit control on the HSBC advice website.

Since Juan is based in Bristol, he could check out the excellent factsheet on debt recovery that BRAVE, the Bristol-based enterprise agency, has on its new information zone.

When I first worked for myself I had a short client list, and luckily they paid on time (sort of). But even when I followed all the best advice, acted firmly and fairly when chasing payment, some customers would hang on to my money. That’s when I sent the boys round.

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