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Conquering cashflow

How mastering cashflow management could help boost your business and give you peace of mind

From creating a plan to useful tips and resources, here’s how to stay on top of your cashflow.

What is cashflow?

Cashflow refers to the amount of cash coming into – and out of – a business.

Cash ‘inflow’ includes what the business gets from selling goods and services, while ‘outflow’ refers to any payments made to suppliers, people, tax authorities or similar.

Take control of your cashflow

There are a wide range of factors that can affect cashflow within your business. Like the coronavirus situation, some of these factors will be outside of your control – but there are steps you can take to protect and improve your cashflow.

Taking a few minutes out of your day to plan and respond to unexpected events is one of these ways. It’ll give you time to make sure you’ve got enough resources to meet your daily commitments, which can help protect and strengthen your business. You can also use this time to invest for the future. 

To help make this exercise easier, we’ve put together a package of practical tools1 designed to help you consider your options. In the tabs below we’ll guide you through creating a plan, and you can read our FAQs and top tips from a broker.

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  • Why forecasts matter

    A cashflow forecast lets you take a look at the status of your bank account on a month-by-month basis, over the coming year. If you’re unsure about creating one, we’ll guide you through the process in the ‘Creating a forecast’ tab. 

    There are many benefits to creating a cashflow forecast for your business, and we’ll take a look at some of these below. 

    You can grow your business steadily

    Today’s sales are the source of tomorrow's cashflow. While increases in sales are often celebrated, it’s worth remembering that extra orders can mean extra fulfilment costs, which could reduce your cashflow in the short term.

    With accurate forecasting, you can make multiple projections to see how much extra cash you’d need to fund various scenarios that are intended to grow sales. Plus, you’ll be able to do this at any stage in your business. 

    You can also take into account new factors, such as unexpectedly large orders. Your forecast will show whether you’re realistically able to fulfil these orders without exhausting your resources or staff, or damaging your existing trade.  

    You’ll be able to anticipate the unexpected

    When creating a cashflow forecast, you’ll need to consider a range of possible scenarios including the impact of sales going above, or below, your expectations. “Small businesses should check regularly that their most important customers are not at risk of failure,” says the Federation of Small Businesses (FSB).

    Your forecast might show that you’ll be short on cash in the near future. If this happens, you can prepare for it by

    • Keeping costs to a minimum 
    • Reducing stock
    • Agreeing extended credit terms from suppliers for that period
    • Trying to grow your sales and margins – or slowing down growth, if that’s causing a problem

    We know that it’s not always possible to take these actions, but it’s much easier to do so when you’ve planned ahead. For example, if you can see in advance that you’re going to have difficulty making tax, National Insurance or VAT payments, HMRC’s dedicated Business Support Payment Service may be able to help you spread these costs over a longer period of time.

    Stay strong when times are tough

    In difficult trading conditions, making daily updates to your cashflow forecast could help put you in a better position than your competitors, because you’ll have a firm grasp on your cash position at all times. When negotiating with customers and suppliers, you can use your forecast to help set terms that’ll get cash into your business precisely when you need it. For example, by getting deposits or negotiating a payment schedule.

    Get extra funding 

    If you master cashflow forecasting, you could have better access to additional finance2 – and possibly at better rates, too. Extra funding in the form of an overdraft or credit card can help when you’re short on cash, while a business loan can boost funds and enable growth. Regular forecasting means you’ll know when it's the best time for your business to secure this type of finance, and how to use it to your advantage.

    An arranged overdraft or a Barclaycard business credit card can help keep your business moving if customers are late with their payments – but bear in mind that you may be charged interest on your borrowing. Get in touch with us, or find out more about the funding options available to you. 

    If you have any cashflow concerns, it’s important to make contact with your bank and accountant as soon as possible. They’ll be able to offer you options that are appropriate to your circumstances. “Early communication is key,” says the Federation of Small Business. Don’t let things drift, because this might affect your business credit rating. As your business becomes more strained for cash – and, generally, the longer you wait – you’ll be left with fewer options.

  • Creating a forecast

    No one knows what the future holds, but it's still better to plan based on your best estimate than not at all. When you create a forecast, you’ll consider the factors that might influence your sales over time, as well as things that might increase your credibility with your bank, or investors if you have them. When doing this, remember to pay attention to when costs fall so you can manage cashflow changes between months.

    If you don’t know how to create a cashflow forecast, don’t worry – we’ll take you through the process in the steps below.

    Step one

    Start the forecast with your opening account balance, then add or subtract any incoming or outgoing payments for each month. When this is done, you’ll be able to calculate your expected end balance for each month. This amount will be carried forward as the starting balance for the following month.

    Important things to remember

    • You’ll need to include all of your income and expenses on the forecast
    • Record a payment in the month that it’ll actually be made or received, rather than the date of the invoice
    • If you’re VAT registered, include your VAT payments in the months they’re due
    • If you’d prefer, you can use this free cashflow forecast template from the Association of Chartered Certified Accountants (ACCA), a global organisation that offers professional accounting qualifications. By clicking this link, you’ll be taken to their website

    It can be helpful to see all of your outgoing payments in one place. At the same time, you can decide if these payments are necessary, or whether you could get a better deal elsewhere. 

    Step two

    Your forecast might suggest that there will be some months when you’ll need to dip into your arranged overdraft. If this is the case, it’s important to consider how you’ll meet this challenge. You’ll need to think about whether you have cash available to meet the shortfall, or take a look at your options for borrowing. Overdrafts can be used as an effective way to manage temporary cashflow issues, but they’re subject to application, financial circumstances and borrowing history, and charges may apply. Take a look at our information on overdrafts3 to find out more.

    If your circumstances mean that you’ll need to borrow money, you can call us or speak to your Business Relationship Manager. Please do this as soon as possible, as your payments will still need to be paid when they’re due. It’s important to keep on top of your payments, and we may be able to help.

    Step three

    Keep your forecast up to date by

    • Reviewing the document regularly. You can add actual receipts and payments in place of what you’d forecasted
    • Adding any new payments since you created your forecast. You can also carry forward or delete payments that were forecasted but didn’t happen
    • Considering the impact of any changes on your month-end balances. Remember, you’ll need to make sure that you either have cash available to cover payments, or that you’re able to borrow what you need

    Once you’ve created your forecast, it’s important to keep it updated as it’ll help you compare your projections with actual performance over time. If your projections weren’t realistic, think about how you can improve next time based on what you’ve learned during the process. You can also use the forecast as a means of reviewing your expenses to make sure they’re all needed and are still good value for money.

  • Cashflow tips

    No matter the size of your business, it’s important for you to stay on top of your cashflow. Managed well, cashflow can boost the growth of your business and provide support during difficult times. Managed poorly, it can create problems for even the most promising business. 

    We’ve put together some simple strategies to help you avoid the most common problems.

    Keep close to your cash

    You can use our app and Online Banking to keep track of your balance. You should aim to do this on a daily basis, as it’ll help make sure that your cashflow forecast is as up to date as it can be. It’s important to have an accurate picture of your balance – then you’ll know if you have enough money to cover any outgoing payments. 

    You can stay close to your account by using

    • Online Banking – view your bank account, and make and receive payments. You can also set up texts and alerts, such as being notified when your balance has reached a certain amount
    • The Barclays app4 – easily view your accounts and carry out transactions wherever you are

    You can also use our SmartBusiness Dashboard5, which gives you a range of options for managing your money. It’ll help save you time and effort by letting you view your bank account alongside your bookkeeping and PayPal information, for example. You’ll be able to see your balance, as well as what you’re due to pay, and what you owe – all on one screen. Regardless of the size of your business, you’ll find features to suit you, helping you make more informed decisions. 

    Plus, you can decide which apps you’d like to connect to your SmartBusiness Dashboard when you register. You can go back and change this at any time. 

    Beat the bills

    Unforeseen circumstances can cause many businesses financial headaches, but it’s important not to ignore bills, even if you’re worried that you can’t pay them. If you delay making payments, the situation could get worse, so it’s better to search for options as soon as you have concerns. 

    Here are some things to consider

    • Make sure you’ve paid your tax bills as these will carry penalties if you don’t do so. You’ll also need to keep up to date with payments such as rent and rates, which are essential for running your business – and finance repayments with the highest cost, as paying these will reduce the amount of interest owed
    • Plan for payments well in advance. 
    • Are you getting the best price for your overheads? If you’re not, you might be able to re-negotiate and reduce costs
    • Try checking your insurance policies – you might have some that could cover, or partially cover, loss of income
    • Review and cancel any subscriptions that aren’t essential to your business. You might be able to find a cheaper deal elsewhere, or find ways of working without that service

    Get financial support

    To manage the impact of the coronavirus situation, the government has set out some help for businesses which you might be able to apply for6. You should review these options as soon as possible, if you haven’t already done so. If you’ve applied for one of these schemes and it’s coming to an end, please continue reading as we may still be able to help. 

    Options include

    • The Bounce Back Loan scheme, which supports small businesses with borrowing needs between £2,000 and £50,000 that have been affected by the coronavirus situation. You can apply through Online Banking 
    • The Coronavirus Business Interruption Loan Scheme (CBILS), which provides additional finance to support long-term viable businesses experiencing cashflow pressures. Visit our coronavirus hub for more information 
    • Retail, hospitality and leisure businesses could also get one-off top-up grants worth up to £9,000 per property to help them through to the spring
    • Business rates holidays for the 2020-21 tax year for nurseries 
    • If your business is based Scotland, Wales or Northern Ireland, you may be able to get additional government support
    • If you’re a small business that has been affected by the coronavirus situation, you may be eligible for one of these government schemes or grants 
    • All business types may be eligible to defer VAT and tax payments through the Time to Pay service. Call the HMRC’s Coronavirus tax helpline on 0800 0159 5592 for details. They’re open Monday to Friday, 8am to 4pm, excluding Bank Holidays

    For more information1, use the government’s business support finder to see what support is available for you and your business. If you’re facing more complex financial concerns, take a look at our debt management page, or get in touch with the national charity, the Money Advice Trust for free, confidential advice. They also run Business Debtline, which offers practical self-help to give you the confidence to speak to your creditors directly and to find solutions for your business. 

    If you need any more help, talk to us about the tailored support we could offer your business. This includes

    Create a plan

    As a business owner, you’re used to planning for the future. But when you do so, it’s important to plan for a range of scenarios. No one could have anticipated situations like coronavirus, but many businesses have managed to adapt and make the most of new opportunities provided by the pandemic. Because of this, they’ve been able to generate new income streams or maintain their existing ones. We understand that this isn’t an option for all businesses – but there are still ways you can prepare to re-open.

    You could try

    • Revisiting your business plan to generate new ideas. We recommend you do this once a year, anyway
    • Talking to your customers to learn how their needs have changed. You can use this information to inform your business decisions
    • Upskilling yourself and your team through online training courses
    • Using vouchers so that loyal customers can still support you while you get back on your feet
    • Signing up for our Back to Business Programme7. We’ve partnered with Cambridge Judge Business School to create an online programme aimed at helping businesses to think positively about the future and plan ahead

    Before you decide to make any changes, you’ll need to familiarise yourself with the government’s guidance for employers and businesses. The health and safety of both your staff and customers should be the top priority. 

    Plan for payments

    A key part of planning for the future of your business is cashflow. Setting money aside from your business current account will help you to avoid being caught short when payments are due. If you bank with us, you can create multiple savings accounts for this purpose – and you can even rename them to help you keep track.

    You should also plan ahead for times when you’ll be busier than you are at the moment, especially if you’re hoping to expand your business. Having cash available for new staff, equipment or supplies could be the difference between being able to meet customer demand and running out of money.

    ‘Businesses need money to grow. A £100k contract may boost turnover, but the invoice may not be paid for 60 days and a business might need £10k in the bank for cover in the meantime.’
    - Ranjot Kaur, Barclays Business Direct Manager

    Don’t overlook invoices

    The sooner you invoice, the sooner you’re likely to be paid – so invoice as soon as a job or order is complete. You can send an invoice by email immediately using Barclays Invoicing8 – it’s free with our app. 

    Payment terms on your invoices make it clear when you can expect to be paid, so it’s important not to ignore overdue invoices. If your invoices have gone unpaid, don’t be afraid to chase this up – late payments disrupt cashflow and could put your business at risk.

    Offer flexible payments

    Helping customers spread the cost of large purchases is one way to encourage more sales. Another benefit is that it can ease cashflow, because smaller payments made on time are better than large ones that are late. Offering online card payments9 could also make payments easier for your customers – and the cash appears more quickly than payment by cheque.

  • A broker’s tips

    How do businesses become more resilient in an uncertain market environment that can play havoc with their cashflow? Simple, says Henry Ejdelbaum, Managing Director of ASC Finance for Business, a broker that specialises in helping businesses secure finance. “There are only two causes of cashflow problems,” he explains. “The money is coming in too slow, or it’s going out too fast.”

    The root of the problem

    Of course, it’s not always so simple – what drives slow sales and fast spending within a business is often complicated. In situations where wages and prices rise more quickly, many businesses face higher costs. At the same time, customers are facing their own pressures, which means they’ll want to hang on to their money for longer and pay bills later. This means that businesses have to wait for new orders to translate into revenues.

    Good management

    The secret to good cashflow management is careful analysis and planning. If you know when your costs fall due and when you can expect to book sales, you’ll have a much better chance of predicting any potential cashflow difficulties, and you’ll be able to respond to them. 

    “Too many businesses aren’t on top of cashflow management,” says Henry. “Financial management should be rigorous and ongoing.”

    Flexible funding

    Once you’ve set aside some time for analysis and planning, it should be much easier to manage your working capital cycle on an ongoing basis. This includes making sure that the right facilities are in place to cope with any difficulties. 

    It’s important to consider a wide range of funding options for working capital, advises Henry. “We very rarely see small businesses depending purely on bank overdrafts these days,” he says. “You need to be more imaginative – options such as asset finance and invoice finance can give increased flexibility.”

    Faster payments

    There are some simple tricks to speed up your working capital cycle. If you make sure to invoice as soon as possible, and your payment terms are clear, this often encourages customers to settle their bills sooner.  

    If it’s not currently easy for customers to pay you – by credit card, for example – it’s important to put this right. If a business knows its cashflow is particularly dependent on a single large customer, they should plan ahead for this, so that a delay doesn’t catch them out.

    Take action

    If a business does run into cashflow problems, it’s important that they seek help as soon as possible, adds Henry. “Once you start running out of money, the funding options available can close down very quickly,” he warns. “It’s vital that businesses don’t bury their heads in the sand but talk to advisers or the bank at the first sign of trouble.”

    For most businesses, there will be help available – and in response to the coronavirus situation, there’s now a wider range of funding options than ever before. If you’d like to learn more about these options, you can get in touch with your Business Relationship Manager or contact us directly. You can also take a look at our ‘Tips for managing cashflow’ article to see the financial support available to you.

  • Cashflow FAQs

    What is working capital?

    Capital usually describes money that’s invested in something. Shareholders want to get a return on investment capital over a long period of time, so they’d expect their money to be used on larger assets or those which help a business to grow long-term. Working capital is the money put to work in running a business. It’s what’s invested in short-term assets (also known as current assets), less money you owe for goods or services you’ve bought, and short term borrowing such as an overdraft (also known as current liabilities).

    Why do businesses need working capital funding?

    The most common short-term assets are stock and debtors – it’s important to understand how much cash is tied up in these when applying for funding. 

    When buying stock, you expect to sell it on for a profit, often after adding value to it in some way. If your customer doesn’t pay for it straight away, but you let them pay after receiving an invoice, then during that period they owe you and become your debtor. Money owed to you is also a business asset, like stock, which should be converted into cash in the near future. 

    Why don’t profits always translate into positive cashflow?

    The amount of cash tied up in working capital depends on the way you trade with your customers and suppliers. If a business has to pay for stock before it gets payment from its customers, then it’ll often need additional funding to grow, without running into cashflow challenges. Also, if loans or hire purchase are being repaid at a much faster rate than the assets they financed are depreciating, then this can also cause challenges.

    How do I encourage debtors to pay on time?

    Wherever possible, try not to become too dependent on one customer – that way, an issue like a late payment doesn’t cause significant difficulties. In the UK, a third of payments to small businesses are late and 20% have faced cashflow problems due to late payments. The office of the Small Business Commissioner was launched to ensure fair practices for Britain’s small businesses, and to support them in resolving their payment disputes. They’ve created 10 top tips to help get your invoices paid on time1.

    How can I monitor cash tied up in working capital?

    Many accounting packages let you view a Funds Flow or Cash Flow statement, rather than looking at changes in stock, debtors and creditors on a balance sheet. They may also have forecasting tools that can help you think about how changes in sales and profitability could affect your balance sheet and cashflow. If you’d like to discuss how changes in your business may be affecting working capital and discuss funding options, you can get in touch with your Business Relationship Manager or contact us directly. 

    What options are there for financing seasonal cashflow?

    You’ll need to make regular repayments on any loans you take out, so other, more flexible options are usually better for short-term or seasonal funding needs. For example, you might be able to apply3 for an overdraft to help out during seasonally quieter periods. If you bank with us, we have a range of Business credit card options, and we now also offer flexible invoice finance solutions through our partnership with MarketFinance10. If you’d like to talk through the options and get help deciding what’s right for your business, please contact us

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