25 April 2019
When There’s Too Much Month Left At The End Of The Money
Every business faces cashflow challenges now and again. Sales might dip one month for reasons beyond your control (the weather, holidays). Or perhaps a big invoice isn’t paid on time. But rent, rates, salaries and other expenses all need to be paid, no matter what. It can be a challenge to keep your finances in the black, particularly towards the end of the month. Here are some tips on how to keep your head above water.
One obvious point is to limit expenditure. New businesses always have to make plenty of payments in the early days, such as for equipment and software, even aside from buying stock and raw materials. There is no way of avoiding those costs. But if something is ‘nice-to-have’ and not ‘vital-to-have’ then it’s better to delay the purchase until the business is up on its feet.
Even an established business can get carried away with buying new things. When the money is starting to come in, it’s tempting to upgrade to bigger, better premises, furniture, or even just stationery. I know of a law firm which spent thousands furnishing its new offices with matching desks and chairs, and even buying hundreds of branded ringbinders for filing. It all looked very smart as the administrators priced it up for sale a few months later.
Far better is to take your time and control costs. That way a sudden shortfall in fees or sales won’t cause a crisis.
A business overdraft is one means of riding out the ups and downs of cashflow. Some business owners shy away from the idea of debt and never want to borrow money – it’s all got to be paid back at some point, after all. Others will only use finance only for capital expenditure or longer-term goals, such as buying premises or machinery. However used properly, an overdraft can provide a helpful safety net.
An overdraft gives you flexibility when you need it, such as being able to keep making your regular payments (salaries, etc.), even if you are waiting for an invoice to be paid or for sales to pick up again. The best time to arrange an overdraft is when you don’t need it, so it’s there when you do. The bank is going to be more willing – in fact, probably very keen – to agree overdraft terms if you have a clean credit record. You don’t want to be trying to get an overdraft just after bouncing a cheque.
In Part 2 of this blog: more tips for keeping your business afloat financially.