Improving your cash flow is essential for any business. This article will discuss seven ways to improve your cash flow and make your life easier.

Cash flow is the lifeblood of any business. It is essential to have a good flow of cash to keep your business running smoothly. Unfortunately, many small businesses face difficulty in maintaining a positive cash flow.

This article will discuss seven ways to improve your cash flow and make your life easier. We hope that by following these tips, you will be able to improve the financial health of your business.

What are Cash Flow Statements?

Cash flow statements are important financial documents that show a company’s cash inflows and cash outflows over a given period. A business can use them to identify cash flow improvements and manage cash flow more effectively. It is essential to know how much money is expected in the business bank account at any point in time.

Cash flow reports can also assess a company’s financial health and make decisions about investment, financing, and other strategic decisions.

Understanding how to read and interpret a company’s cash flow is essential for making sound financial decisions. They can be complex financial documents, but they can be an invaluable tool for managing cash flow with a little bit of knowledge.

The other important financial statements that a business will use to look at its financial health are the profit and loss and balance sheet.

What is a Positive Cash Flow?

Positive cash flow means a company’s cash inflows exceed its cash outflows. It can happen when a company experiences an increase in sales, collects accounts receivable faster than it pays its bills, or reduces its inventory levels.

A company with positive cash flow is considered healthy and can pay its debts, reinvest in its business, and return money to shareholders. If you have a good cash flow, it might be worth opening a business savings account to earn interest.

What is Negative cash flow?

Most businesses experience negative cash flow at some point. It can result from several factors, such as slow sales, high overhead costs, or uncollectible accounts receivable. Whatever the cause, negative cash flow can be a severe problem for any company.

If you are aware in advance, you can do things, including arranging a bank overdraft or small business loan.

Cash Flow Management

Cash flow management is the practice of monitoring and regulating a company’s incoming and outgoing cash flow. It is an essential part of financial management and allows a company to keep tabs on its liquidity.

Knowing the cash position helps a business decide on growing the business, making cuts or purchasing assets.

Here are our 12 top tips on ways to improve cash flow:

1. Complete Customer Credit Checks

It’s so important to screen your customers before extending credit carefully. By completing a credit check, you can get a better sense of whether a customer will be able to pay their bills on time.

This information can help you make better decisions about who to extend credit to, and it can also help you set credit limits and terms that are appropriate for each customer. Taking the time to complete credit checks can help you protect your business’s cash flow and keep your business thriving.

If existing customers are slow-paying, it is worth completing a credit check to ensure they have a good credit history.

Companies can get their consumer credit score from Veriphy.

2. Send Invoices out Quickly

This may sound obvious, but the quicker you send out an invoice, the quicker you will get paid.

Ensure that the invoice is correct and precise on payment terms and how to pay. Sending invoices using accounting software will give you a history of when it was sent and if they have viewed the invoice.

One of the biggest reasons a supplier pays invoices late is that they have not received it or it is wrong.

3. Collect Debt to Improve Cash Flow

This sounds a little obvious, but sometimes the best advice is. Start by going through all your unpaid invoices and see who owes what and give them a call!

Don’t just rely on emails, either. Speaking on the phone makes a huge difference in the success rate of debt collection. If you use cloud accounting software, you will access a list of creditors based on the number of days past due.

You can also send debt collection letters, so any further action is documented and legal if the call doesn’t prove to be fruitful.

It will be possible to set automated payment reminders on most systems, which can do some of the work for you; for more credit control help and advice, read our guide on credit control.

4. Get paid faster

How long are you waiting to get paid? Why? It is YOUR business, so you can choose when invoices are due! Reduce payment terms to what suits you or, even better, get payment upfront where possible.

To help improve cash flow, many small businesses will ask for a deposit or payment on completion of work. An example is that a bathroom fitting company has to purchase the fittings in advance of the job; they might request a deposit. The balance is paid on completion of the work.

Make sure your repayment terms are easy to find; you can add them to your invoices and a link to your terms and conditions. You can also make it clear if you charge interest to late payers.

5. Make Invoices Easier to Pay to Improve Cash Flow

How easy is it to pay you? Do you offer different payment options? Do your invoices have a payment link? Do you accept credit card payments?

By small business owners using payment services such as Stripe or GoCardless, you can integrate electronic payments into your invoicing system. Customers will get a link on the invoice to pay straight away, enabling the use of Android/Google Pay/Apple Pay from their phone.

It can be simpler than expecting bank transfers which can be time-consuming to set up for customers. Also, make sure you give a few options for payment, as this again makes it easier for people to choose the best option for them.

You may also wish to set up direct debits with regular payers, so the money is collected every month without anyone remembering.

Accounting software that makes all the above ideas possible includes FreshBooks, Xero QuickBooks and Zoho Books.

6. Offering Discounts for Early Payments

As well as charging interest for later payers, why not introduce customers incentives for paying early by offering a discount. It can significantly boost cash flow, especially if people feel like they are getting a great deal. However, be aware of profit margins and make sure you don’t sacrifice too much.

7. Have a Flash Sale of a Product or Service

Like big companies, especially in retail, flash sales can work well to increase cash flow. No one needs to know the reason; coincide it with an event or time of year if you wish but make it a deal not to be missed.

A sale can secure an injection of cash into a business if it is a tricky time. It can work for products or services; make sure you have the time or stock to deliver on the sales made and be relentless with the marketing!

8. Create Passive Income

This can be easier for some types of business than others but have a big brainstorming session to develop some ideas. Maybe you have some products or services that can be turned into digital products that can be sold repeatedly.

Creating a course or an ebook, planner, or even merchandise are all ideas for creating a passive income. There may be work in setting these up initially, and you will need to invest in marketing for them, but they will create income with minimal input once set up – especially a course or digital download.  

9. Reduce Expenses

One of the biggest cash flow problems can be the amount of expenses a business has.

There are several things you can do to reduce expenses, including:

Reducing stock by not buying more than needed while still meeting customer demand for products and services.

Reducing business costs by not paying for unnecessary operating expenses.

You can also think about making late payments to suppliers, but be sure you won’t have to pay late fees and maintain a good relationship with them.

10. Make Sure you Have a Good Credit History

Having a solid credit history will help you obtain better credit, overdrafts, and business loans. It will help avoid cash flow problems by providing a cash injection if required or paying for items or services on credit.

11. Late Payment Penalties for Improving Cash Flow

We have already looked at customers’ incentives for paying early, but what if they pay late?

Late payments can be one of the biggest problems for cash flow, especially large amounts.

By adding late payment fees, it can help to get invoices paid on time. Ensure that any late payment penalty is clear on both the invoice and terms and conditions.

12. Debt Factoring

How does Debt Factoring Improve your Cash Flow?

We should also mention debt factoring as an option. This is when a company that specialises in debt collections purchases your debt from you. They are then responsible for collecting it, and you get the cash flow straight away, with a set amount deducted as a fee.

It is a viable option for many companies without the time or workforce to have a dedicated credit control or debt collection team. However, make sure you only use a reputable firm and be clear about the legal implications for yourself, your clients, and the factoring firm you choose.

Cash Flow Forecast Template

As discussed above, managing a cash flow statement and up-to-date information is essential to keep a business running smoothly. To help business cash flow management, we created a free cash flow template.

Using the template will help you see if you need to deal with any business cash flow issues before they occur.

Conclusion on How to Improve your Cash Flow

There are many ways to improve a business’s cash flow. One way is to offer discounts for early payments. This can encourage customers to pay their invoices more quickly, which will increase the cash flow.

Another way to improve cash flow is to introduce late fees. It can encourage customers to pay their invoices on time, and it can also save the business money in the long run.

Finally, businesses can also improve their cash flow by offering different ways to pay an invoice. Businesses can increase cash flow and keep their operations running smoothly by taking these steps.

Let us know if you try any of the above ideas or if you have any you would add to the list. Improving cash flow may sound daunting, but you can see that taking action with some relatively simple changes can yield a big difference.

The post Improve your cash flow appeared first on Business Accounting Basics.

Even a new business should look at the accounting system and the reports they regularly require to run their business smoothly. Business owners may need reports along with investors, banks and management.

While the number of students learning about accounting has been on the rise for many years, it is still surprising how few businesses know how important it is to understand this vital part of the business world.

7 Reasons Why Accounting is Important

1. Understanding your business
2. Accounting keeps the business organised
3. Produces the reports for year-end returns
4. Helps decision making
5. Required for investments and loans
6. Measures business performance
7. Legally required

1. Understanding your business. The first reason why accounting is essential is to understand your own business. It is impossible to run a business without keeping track of all of your expenses and revenue. As a business, you need to look at the whole picture; income and expenses are a small part of the entire picture. The balance sheet and forecasting can show a completely different view to the profit and loss account.
   
   
2. Accounting keeps the business organised. Without accounting procedures in place, you wouldn’t know how much money a business has available. It is good practice to complete accounting regularly and having up to date reports.
   
   
3. Produces the reports for year-end. It doesn’t matter if you are a large limited company or self-employed year-end submissions to Companies House and HMRC are required. The minimum reports required are the Balance sheet and Profit and Loss.
   
   
4. It helps Decision Making. Every business has to decide how they run it, how much stock to keep and if changes are required. Looking at the accounting figures will help make these decisions.
   
   
5. It is required for investments, loans and sale of the business. If you need a business loan or investment, they will look at your accounts to decide if it is a good investment. Depending on how significant the investment is will depend on how much information required. Complete due diligence may also be required.
   
   
6. Measures business performance. There are lots of accounting ratios to help measure business performance. We have produced a list with ratio calculators.
   
   
7. It is legally required. It is a legal requirement for businesses to keep records of their accounts. Year-end accounts need submitting to either companies house or HMRC. Documents need keeping for a minimum of six years.
   
   

Why Accounting is Important? – Minimising risk

Another reason why accounting is important is to minimise the risk of business failure. There are many different types of business: rental companies, estate agents, restaurants, bars, computer companies, and law firms, to name a few. All of these businesses have an accounting system in place.

Accounting systems are designed to help manage the books so that there is proper record-keeping and no confusion about who owes what to whom. Accountants also use their bookkeeping skills to perform year-end accounts or audits.

Many accountants also work as financial analysts for their clients. The financial analysts’ jobs entail examining the financial records of a business to find out if there are any problems. Finding problems early on is easier to do with accounting information than figuring things out later when the problem may have become much more severe.

Creating a Financial Plan

Financial planning is an essential part of accounting for a business. A financial plan will show how a company will perform in the future. It is important for several reasons:

• Business growth – If you are planning to expand, there will be additional expenses and revenue. A plan will help you to see if you can afford to expand
• Cash flow – keeping track of cash will show when you might be short of money or have money available to reinvest. See our planning example below for a seasonal business.
• Investors or banks – will require a forecast to see if it is viable to invest or loan money.

Why Accounting is Important – Business Planning Example

One of the reasons planning is important is for a business with seasonal sales. An example of this is a garden furniture manufacturer. The company starts in January and manufactures a large stock of furniture. The stock is mainly sold from April to September.

The business will need to plan for the whole year to ensure that it has enough capital to get through the quieter months. This is where cash forecasting is an essential part of a business.

Accountant Certifications

An accountant isn’t always required for small businesses, but they might be able to add value. They can add value by knowing taxation rules and what a business is entitled to claim.

However, if a company is going to hire accounting services, it needs to make sure they have the appropriate services required. Some accountants specialise in the size of businesses or by type.

One of the first things a client should do is ask an accountant if they have the proper certifications. There are several accounting bodies in the UK. They will have taken an extensive education course and have gone through a background checking process to qualify to perform their duties fully. Their regulatory body will ensure that they are fully trained, have a backup and are insured.

Hiring a bookkeeping service

Hiring a bookkeeper can add value by allowing you to continue to concentrate on the business while they complete the accounting records. A good bookkeeper will ensure that important business accounting reports are published on time.

They can help chase debts, raise invoices, produce reports, enter transactions and put systems in place. Some bookkeepers will file annual accounts without the need for an accountant.

Conclusion Why Accounting is Important

With the correct accounting procedures in place, a business can run smoothly.

Reports can be used to see where a business is losing money and what steps need to be taken in order to turn things around. It can also be used to provide accurate and up-to-date financial information.

All of this information can help the business make intelligent decisions regarding what to invest in, how to grow their company, where to buy shares in, and anything else that they feel may be important to its future growth.

Further Reading Why Accounting is Important?

As part of our bookkeeping templates, we created a budget Excel template. Using this template will assist your business in setting a budget and then comparing the actual figures to the budget.

Further reading on why accounting is important? is available on an accounting software site called FreshBooks.

The post Why Accounting is Important for Every Business appeared first on Business Accounting Basics.

Although financial statements may seem a little complicated to understand at first, they will make your life as a business owner much easier because you will have a much better understanding of the numbers for your business.

Today, we will take a detailed look at what they are and how you can start using them for free to better understand your finances.

What is a Financial Statement UK?

In simple terms, a financial statement represents the financial position of a business or, in some cases, an individual using data structured to create a clear overview.

This data can be used to show the financial activity of a business to an outside party, such as investors, government agencies, or for tax purposes. Or it can also help the business owner make better and more informed decisions for the business.

Why Financial Statements are Important

Financial statements display the financial health of a business.

They provide a clear overview of what’s going on financially inside a business to both internal and external parties. For example, it can help investors understand whether a company is going to be able to repay a loan depending on whether it has the needed cash flow.

If there are many potential problems with a business, investors may choose not to invest in it.

A cash flow statement is one of the main types of financial statements, alongside a balance sheet and profit & loss forecast. They’re all extremely important, but we’re going to talk about these in detail a little later on.

Nowadays, investors require key financial statements before they will invest in a business as they show the company’s financial position.

If your business does not have the statements available, you might just run into a couple of issues, and you will definitely not be able to get any type of loan. If you haven’t started keeping your financial statements, we will talk you through some of our free templates later on. 

Types of Financial Statements

As already mentioned a little earlier on, the four main types of key financial statements are:

1. Balance Sheet
2. Cash flow statement
3. Profit and Loss or Income Statement
4. Statement of changes in Equity

In case you are wondering why the third type of financial statement has two names, it’s because, in the UK, we call it a profit & loss. However, in the USA, it is often called an Income Statement.

So, if you have ever heard of an Income Statement, it’s the same as a profit and loss forecast. Let’s take a look at what the different types are used for and how you can use our free templates.

1. Balance Sheet

The balance sheet is there to give yourself or outside parties a snapshot of the business’s assets, liabilities, and equity. Having a snapshot of the assets, liability, and equity is an excellent indication of how a company is performing, as well as the stability of a business.

Assets are made up of both fixed assets and current assets. Fixed assets have a longer life than current assets and tend to be used in the production of goods or services, while current assets are cash or cash equivalents that can be converted into cash within one year, such as stock, debtors, bank accounts and cash itself.

Liabilities are debts or obligations that must be paid. This could include loans, mortgages, credit card debt and any other money owed to a business or individual. They are split between long-term liabilities and current liabilities. Long-term liabilities are for expenses that will take longer than a year to pay back and current liabilities are for expenses that must be paid within the next 12 months.

It is important for a business to keep track of its liabilities so it knows how much it owes.

Shareholders’ equity is the difference between a company’s assets and liabilities.

It represents shareholders’ ownership of the company and their claim on its assets. Shareholders equity can include shares, retained earnings, and additional paid in capital.

To put it simply, shareholders equity is an account that measures how much shareholders have invested in a company minus any dividends or distributions they have received. It helps inform potential investors of a company’s value and is an important metric to consider when evaluating whether to invest in a business.

Keeping a balance sheet is essential, as it’s required to be submitted by all companies registered at Companies House.

If you would like to start keeping a balance sheet, we have a free balance sheet template that you can use. You can download the template in excel format for free and easily edit it to start keeping your balance sheet.

2. Cash flow Statement

The second type of financial statement is the cash flow statement or statement of cash flows.

The cash flow statement is an essential financial document for any business; it helps track the cash coming in and going out. It’s essential to understanding a business’s cash flow because it can tell you how much cash is available at any given time.

This information can be invaluable when planning or investing, as it will give you insight into a company’s cash situation. Further, cash flow statements help indicate trends over time, revealing which cash sources significantly contribute to a business’s health and growth.

Ultimately, a cash flow statement is an incredibly helpful tool that provides valuable insight into cash availability and helps companies make informed decisions regarding their finances.

We have a cash flow forecast template that you can download for free. Using this template, you can easily forecast the cash flow of your business, which will help you make better decisions in the future.

3. Profit & Loss

The profit & loss statement will show both the gross and net profit.

This is also a helpful financial statement for management decisions, as it helps you understand the exact numbers inside of your business. Often, you might think that you are making more profits than you are because you are selling your products at decent margins, but after taking into account your overheads, you are making a lot less.

The profit and loss account helps you identify if something like this is happening. If it is, you can then review your management decisions to improve them for the future.

You can download an excel profit and loss statement template for free.

This template will make it easy for you to calculate your:

• Total sales
• Cost of sales
• Gross profit
• Expenses
• Net Profit/Loss

Using these figures, you will be able to gain much better insight into the real numbers inside of your business.

4. Statement of Changes in Equity

Every business needs to keep track of changes in its equity statement over time in order to ensure they maintain the right amount of capital.

Equity changes occur due to changes in profits and losses, paying out dividends and other changes like investments. Considerations such as the timing of changes, events causing the changes and economic factors that may impact those changes must all be taken into account when developing an accurate equity statement.

Every business should reach out to a financial professional if they need help navigating changes related to their equity statement.

How to Produce a Statement of Financial Position

There are two ways to produce financial statements using a spreadsheet or accounting software.

The easiest way is to use the best accounting software that includes lots of reports. Accounting software helps to reduce mistakes and can save time.

HMRC are introducing Making Tax Digital, requiring all tax returns to be submitted by third-party software. VAT was introduced in 2019, and self-assessment is planned for 2026.

Frequently Asked Questions Around a Statement of Financial Position

Lastly, I just wanted to cover some frequently asked questions regarding what is a financial statement.

What is the Difference Between a Financial Statement and Bank Statement?

A financial statement provides you with a much clearer overview of how your business is doing compared to a bank statement.

Bank statements just have your transactions listed, which makes it incredibly hard to see how your business is doing. Investors will always require certain financial statements instead of bank statements for this reason.

Plus, if your company is registered at the Companies House, you are required to submit certain financial statements as part of the year end accounts. 

What is the difference between a Balance Sheet and Profit Loss Statement?

The balance sheet provides a snapshot of a business’s performance at one given moment. It provides insight into a company’s assets, liabilities, and equity. The profit and loss statement provides insight into how much profit (or losses) a company is making over a period of time, usually one year.

In simple terms, the balance sheet is more of a snapshot, while the profit & loss statement is more of a video over a longer period of time. 

When Should a Business Prepare Financial Statements?

There are a couple of times when a business should prepare financial statements. For example, the government may need access to a company’s reports for tax purposes. Usually, businesses will also prepare financial statements for their results at the end of the year, but this depends on the size of the business.

Another example of when a business might prepare financial statements is when looking for investors.

For further reading, check out our accounting basics section.

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