How to avoid issues with your cash flow

Managing cash flow is one of the biggest causes of stress for any start-up business. Don't leave it until the red warning light is on – start smart.

As a management accountant, Carmel Seery has a wealth of experience diagnosing cash-flow issues within small businesses. In this blog, she lends her wise words to help you avoid the common cash-flow pitfalls.

The role of the management accountant

First off, a management accountant works with the numbers within your business. That's a little different to a standard accountant, who will do tasks like submitting your tax returns.

"I particularly focus on cash flow," says Carmel. "Cash flow, as you can imagine, is huge for any business. And it doesn't matter where you are on the scaling side of business. Cash flow is absolutely key to how you're going to succeed.

"A lot of the time you find, particularly when starting up, entrepreneurs and small business owners don't keep good records," Carmel adds. "They don't introduce the system of bookkeeping quickly enough into their business."

Starting smart

Keep track of your incomings and outgoings from day one. Understandably there are many other factors distracting you when starting a new venture, but this is one point of business you shouldn't put on the long finger.

"One thing I will try and get across is that once you have your process and system in place, for less than an hour, you can keep that ticking over every week," Carmel says. "Whereas most entrepreneurs wait until they their taxes are due, and their accountant is looking for information.

"They end up spending a week solidly trying to chase receipts, and backup for this and that. It's all a really hard part of the whole process. By the time they have that done, have all the information sent to their accountant, they don't want to look at it again."

And so, the disheartened entrepreneur puts the books away for another year only to face the same problem 12 months down the line.

"They don't know how much money they're making. It's often a surprise when the accounts come back," adds Carmel.

Not bad if it's a pleasant surprise. But if you're waiting until your annual check-up to find out you're haemorrhaging money, often it can be too late to make the adjustments you should have made during the year.

Avoiding the panic

No matter where you are in your business – whether it's the start or you're a few years in – start planning ahead today.

"It's just setting up those processes so that you can see where the holes are in your cash," Carmel explains. "This is where start-ups find trouble because they're seeing the bank account in one dimension, if you like, and they don't see it from one, two, three months ahead.

"I would get clients to look at setting out a plan over the next 12 months – breaking it into three monthly bite-sizes. Look at what money is coming in and what money is going out. Do you have enough money for what's going out and to pay yourself?

"If not, what can you do about it? How can you manage it better? It's much easier to do something about this when you're looking at it three months down the line as opposed to when you go to the bank, and there's no money."

Tips to get out of the hole

Recognise that once you're in this position, it's a serious one. You can no longer bury your head in the sand hoping that the problem will resolve itself.

You need to be very honest and lay it all out in front of you. What do you need to pay and what are you due to be paid?

• Does someone owe you money? Spend time chasing that up.

• Check your pricing. Are you pricing too low?

• Price the value of your service and not per hour.

• Do you owe a supplier? Can you talk to them about a payment plan?

• Can you apply for a cash injection via a loan or grant? Before anyone will look at giving you this funding, you'll need cash flow forecasts and the ability to demonstrate you have control over your numbers.

Relevant resources

• How to get funding for your start-up

• Late payments: Tips to help small businesses get paid on time

• Funding for growth: Three steps for getting ready to talk to your bank