As a sole trader, you’ll find yourself in many challenging situations, including managing cash flow. Having a positive cash flow is crucial for your small business as it allows you to invest in new opportunities and grow.
The chartered tax accountants in our company have shared some valuable cash flow management tips and strategies that you should consider:
Use a Proactive Approach
While reactive cash flow plans have worked for many sole traders in the past, it’s time to use a proactive approach when managing the money. With economic uncertainty and increasing competition, having a proactive attitude will help you have funds lined up for a rainy day.
Look at your current method of managing the cash moving in and out, such as purchases, bills, payroll, investments, etc. Is it efficient enough to minimise financial emergencies? Although most emergencies are unexpected or inevitable, being proactive helps you plan for most financial requirements to keep your business up and running.
Update Books Accurately and Timely
One of the biggest mistakes most individuals do is procrastinating on keeping books. We agree that you have a lot on your plate as a sole trader, but your cash flow’s health depends on how good your accounting is. If you can’t find the time to update your books, you can hire our experienced accountants to do it for you. This will help you evaluate the financial state of your business and make decisions accordingly.
Collect Receivables as Fast as You Can
While building a good relationship with your customers, try not to be too lenient. Most customers take advantage of flexible payment terms that can hurt your business’s cash flow. Be direct yet polite, and create an invoicing strategy to avoid missing payments. Here are some things you can try to encourage quick payments:
- Offer online payment options along with an incentive (free shipping, discount voucher on next order, etc.) to encourage your customers to pay online
- Offer discounted prices on outdated inventory
- Request deposits from customers when taking large orders
- Offer incentives to those who pay quickly
As discussed before, the current market is pretty volatile, so you have to keep your business as flexible as possible. Doing this will allow you to manage unexpected shifts and capitalise on opportunities. As a result, you gain a competitive advantage over your competitors and enjoy good financial health.
IBISS & CO offers accounting services for small businesses and sole traders in London and Walsall. Our tax consultants and chartered accountants have 25 years of experience in the industry and can help you with cash flow management. In addition, we can also help you minimise your taxes so you can save more money. Contact us for a free consultation.