Collect your debtors faster

Managing cash flow effectively is crucial for the sustainability of any business. A significant component of this involves managing debtors efficiently to ensure that cash inflows occur on time. However, it's important to remember that even uncollected sales impact your financial obligations.

Did you know that you still have to pay tax on your debtors, even if you haven’t collected them yet? This happens because your tax obligations are calculated based on your sales figures, not just the cash you have received.

Why It's Critical to Collect Debtors Promptly

When your cash is tied up in uncollected invoices, it restricts your ability to reinvest in your business, pay your bills on time, or even meet your payroll obligations. This can hamper your business's growth and potentially lead to financial difficulties.

Therefore, collecting debtors promptly should be a top priority.

How to collect your debtors faster

Agree on Payment Terms at the Time of Sale

Clear communication about payment terms sets the stage for all future interactions with your customers regarding payments.

Ensure Your Customer Signs Your Terms of Trade Before You Start the Job

This formal agreement protects you legally and ensures that both parties understand the financial obligations involved.

Include a Guarantee in Your Payment Terms

This adds an extra layer of assurance that you will be paid, encouraging prompt payment.

Invoice as Quickly as You Can

The sooner you send out an invoice, the sooner you can expect to be paid.

Ask for a Deposit Prior to Starting the Job

This not only secures a portion of your payment upfront but also commits the customer financially to the project.

Change Your Payment Terms to Within 7 Days of Invoice or On Delivery

Shortening the payment period accelerates your cash inflows.

Send Statements Religiously at the Start of the Month

Regular updates remind your customers of their dues and prevent overdue payments from being overlooked. Implementing automated reminders through your cloud accounting system, such as Xero, can encourage late payers to pay on time. 

Have Someone Other Than the Owner Be Responsible for Collection of Debtors

This can often lead to more systematic follow-up and less personal conflict.

Document Any Changes to Your Standard Payment Terms in Writing

Keeping a written record of all terms and agreements avoids misunderstandings and provides legal backing.

Use an Integrated Payment Gateway App

This technology simplifies the payment process for your customers, making it easier and faster for you to collect your money.

Don’t Provide Credit to Customers Who’ve Been Late Payers in the Past, and Don’t Offer More Credit to Customers with Outstanding Payments

This policy helps mitigate risk and improve your cash flow.

Proactive management is key

Don’t procrastinate on your debtors. Establishing clear, firm payment terms and ensuring you stick to them is vital. Remember, it’s often the proactive, attentive businesses that manage their cash flow most effectively.

"It’s the squeaky wheel that gets the oil." – Anon

Don’t let your business be slowed down by late payments. Be the squeaky wheel, take action today. We can help.

Keeping debt low through proactive credit control. 

Having a large amount of debt in your business is bad for cashflow, weakens your overall financial health and brings down your credit score as a business.

So when customers don’t pay on time, that ‘aged debt’ is bad news for your finances. Aged debt can begin to stack up, adding to your liabilities and reducing the health of your overall balance sheet.

The good news is that there are ways to tackle late payment head-on.

Get effective with your credit control

Being proactive with your credit control procedures and debt management helps you speed up payment, reduce your debtor days and rein in your overall debt as a business

To improve the efficiency of your credit control, these strategies help speed up payment processes, reduce debtor days, and maintain a healthier financial status for your business.

Make your payment terms clear

The foundation of effective credit control is clear communication about payment terms. Ensure that your payment conditions are explicitly stated on all invoices. Additionally, incorporate a detailed credit control policy into the terms and conditions your customers agree to. This clarity helps prevent misunderstandings and sets clear expectations from the start.

Run regular debtor reports

Regular reviews of your debtor situation are vital. Run frequent reports to identify which invoices are overdue and which customers are consistently late in payments. Understanding the pattern of late payments allows you to prioritise debt collection efforts effectively.

Be proactive in chasing late payment

Being passive about debt collection is a common pitfall, however it's important to not be shy about asking a customer to pay their bill. Adopt a proactive approach by regularly contacting customers with overdue payments. Set up reminders for yourself to chase late payments, ensuring you are persistent but respectful in your communication.

Automate your credit control tasks 

Technology can significantly streamline your credit control processes. Many cloud accounting platforms offer built-in tools or integrations specifically designed for automated credit control. These systems can automatically send reminders to customers as soon as an invoice becomes overdue, reducing the manual effort required and ensuring timely follow-ups.

Leveraging technology for better credit control

The use of technology in managing credit control cannot be overstated. Automated systems not only save time but also reduce the chance of errors and omissions that can occur with manual processes. These tools ensure that all customers receive consistent communication and that no overdue invoice slips through the cracks.

If late payment and aged debt is weighing heavily on your balance sheet, we’ll help you implement the appropriate apps that support the automated systems, debtor reports and credit control processes needed to reduce debt.

Get in touch to improve your credit control.

5 ways to increase profit and improve cashflow

The dual goals of increasing profit and improving cash flow are usually at the forefront of every entrepreneur's mind, as both are essential for sustaining and growing your business. 

However, the path to profitability and strong cashflow is not always straight forward. 

Here, we explore 5 ways to increase profit and improve cashflow, offering actionable strategies that can improve the financial health of your business.

These insights are particularly beneficial for businesses navigating the complexities of the current economic landscape.

1. Sales

Profit increases when you increase sales; cash increases when you collect the money from customers. To increase both your profit and cash from sales:

• Delight your customers
• Generate more leads and referrals
• Convert a higher number of quotes or proposals
• Increase transaction frequency
• Increase transaction value

2. Invoicing

Profit increases when you send an invoice to a customer; cash increases when you collect the invoiced amount. To increase both your profit and cash:

• Set clear Terms of Trade
• Offer a small discount for early payment
• Agree the price in advance
• Stick to your payment terms
• Don’t do work for people who have overdue payments

3. Margins

Increasing your margins will increase your profit; collecting the increased margin will increase your cash. To increase both your profit and cash:

• Increase your prices
• Invoice faster
• Negotiate better payment terms with suppliers
• Reduce errors and rework
• Train and empower your team
• Increase your efficiency

4. Financing

Reduce your finance costs to increase your profit; borrow money for assets to increase your cash. To increase your profit and cash through financing:

• Spread the costs of assets over 3-5 years instead of buying them outright (e.g. vehicles)
• Borrow from a bank instead of a finance company
• Secure the asset purchases over ‘bricks and mortar’ (if possible)

5. Overheads

Reducing your overheads will increase both your profit and cash. To reduce your overheads:

• Negotiate with suppliers
• Measure your return on your spend (e.g. advertising, accounting fees, etc.)
• Review your subscriptions
• Go paperless

This is not an exhaustive list of ways to increase your profit and cash. We can help you identify specific areas of improvement in your business to increase both profit and cash. Contact us to find out how. 

"Never take your eyes off the cashflow because it’s the lifeblood of the business."

Sir Richard Branson

Seek support

Implementing these strategies requires a meticulous approach and an understanding of your unique business context.

At First Class Accounts Ovens & Murray and Busy01 Consulting, we provide bookkeeping and business consulting services that are tailored to your specific needs. We can identify areas of potential financial improvement and help you implement strategic solutions to enhance both profit and cash flow.

Don’t let the complexities of financial management hold your business back. Contact us today to learn how we can assist you implement these 5 ways to increase profit and improve cashflow.

Why Bookkeeping is Essential for Your Business

As a small business owner, navigating the financial aspects of your operation can often seem like a daunting task. 

You may find yourself asking whether you need a bookkeeper, an accountant, or both. It's a common query that many entrepreneurs face as they look to streamline their financial processes and ensure the financial health of their business.

At its core, bookkeeping involves the organisation, recording, and reporting of financial transactions of a small business. 

This might seem straightforward, yet the role of a bookkeeper extends far beyond mere number crunching. They are the custodians of your financial accuracy, ensuring that every cent in and out of your business is accounted for.

The Role of a Bookkeeper

Bookkeepers clear the way for accountants to work with your business strategically. Their day-to-day responsibilities include keeping track of daily transactions, sending and managing invoices, handling the accounts payable ledger, keeping an eye on cash flow, and preparing the books for the accountant. 

These tasks, while seemingly operational, are critical for the strategic financial planning and decision-making processes of any business.

Moreover, a good bookkeeper provides a level of financial insight that is invaluable for a small business. This insight allows for the early detection of any financial discrepancies that could potentially escalate into bigger issues. It also aids in maintaining a steady cash flow - a critical component for the survival and growth of any small business.

When hiring a bookkeeper, it’s essential to inquire about their area of specialisation. The financial needs of a business can vary greatly depending on the industry, size, and stage of growth. 

Some bookkeepers may offer additional value by being able to train staff in using online accounting or Point of Sale (POS) systems or providing advice on optimising business processes for financial efficiency.

Specialisation in Addon Apps

These days, there are numerous applications designed to streamline business operations, including financial management. 

One of our specialities at First Class Accounts Ovens & Murray, and Busy01 Consulting, is advising on Addon Apps. 

We pride ourselves on understanding the different options available for various industries and businesses. By providing insights and guidance on the most suitable apps for your business, we aim to improve efficiencies, save time, and reduce costs. 

Whether you need help streamlining your invoicing process, managing your inventory more effectively, or tracking your expenses, there's likely an app that can assist. We are here to help you navigate these options and implement the appropriate apps for your business.

The Difference Between Bookkeeping and Accounting

Understanding the distinction between bookkeeping and accounting is crucial for any business owner. 

While bookkeeping lays the groundwork for the financial management of your business by maintaining accurate records of all transactions, accounting builds on this foundation to provide strategic financial analysis, planning, and advice. 

Accountants use the data prepared by bookkeepers to generate financial reports, conduct audits, and prepare financial forecasting. These are essential for strategic decision-making, securing loans, attracting investors, and ensuring compliance with legal and tax obligations.

Why Bookkeeping Matters

Efficient bookkeeping is the cornerstone of a healthy business. 

It ensures accurate financial records are kept, which is not only a legal requirement but also critical for understanding your business’s financial health. 

Regular bookkeeping helps in budgeting by categorising revenues and expenses, providing a clear view of where the business stands financially. This clarity is essential for planning future growth or addressing potential shortfalls.

Moreover, bookkeeping plays a vital role in tax preparation. With accurate and up-to-date financial records, preparing for tax season becomes much more straightforward, ensuring that you can claim all your entitlements while also meeting your tax obligations.

Bookkeeping is more than keeping records

Bookkeeping is not just about keeping records; it's about setting the foundation for your business's financial health and strategic growth. 

A bookkeeper is a key player in your financial team, working alongside accountants to ensure that your business not only survives but thrives.

If you're looking to improve efficiencies in your business to save time and money, or if you need expert advice on managing your financial transactions and selecting the right Addon Apps for your business, do not hesitate to get in touch. 

Our team specialises in providing tailored bookkeeping solutions that meet the unique needs of your business. Let us look after your books, so you can focus on what you do best: growing your business.

Review your expenses - and save yourself money

Running a business will always mean incurring certain expenses or 'spend'.

Whether you’re a large family business or a small fledgling startup, there will be costs, overheads and supplier bills that mount up – and these expenses will gradually chip away at your cash position, making it more difficult to grow and make a profit.

So, what can you do to reduce your spend levels? And what impact will this have on your overall margins, profits and ability to fund the next stage in your business journey?

Getting proactive with your spend management

Spend management is all about getting in control of your expenses – and, where possible, aiming to reduce the level of costs and overheads that you incur as a company.

Why does this matter? 

Well, excessive spending eats into your cash flow, reduces your profit margins and stops you from achieving the profits that you’re capable of as a business.

So if you can get proactive with your spend management, you can actually make your company a far more financially productive enterprise – and that’s great for your overall business health.

So, what can you do to reduce spend and slim down your company expenses?

Here are some key ways to reduce expenses:

Reduce your overheads

Your overheads are the unavoidable costs of running your business, producing your products or supplying your services.

If you have bricks and mortar premises, these overheads will include rental payments, utility bills and even the cost of paying your staff.

Drill down into the numbers and see where there are opportunities to reduce these overhead costs. That could mean moving to smaller premises, or reducing the size of your workforce, to reduce payroll expenditure.

Put limits on staff expenses

If your employees can claim expenses, or buy raw materials and equipment with the company’s money, these costs can soon start to rack up. It’s a good idea to put a spending limit in place, so each staff member can only spend up to an agreed amount.

Having a clear expenses policy helps, as will training up your staff in good spend management techniques. Expenses cards – such as Webexpenses, Soldo or Pleo – allow you to quickly set spend limits, track expenses and pull your expenses data through to your cloud accounting platform for processing.

Look for cheaper suppliers

If you can reduce your supplier costs, this will go a long way to bringing down your overall spend.

If you’ve been with certain key suppliers for years, look around for new quotes, look at current market prices and see if you can negotiate better deals. And if your old suppliers aren’t flexible enough, try swapping to newer, more eager suppliers who will be willing to meet you in the middle on price.

Make your operations leaner

The bigger your operational costs are, the less margin you’ll make on your end products and services.

One way to resolve this is to aim for a ‘lean approach’, paring back your staff, resources and operational complexity to the bare minimum.

By making the business as lean as possible, whilst still delivering the same output, you keep your revenue stable, but reduce the spend level that’s eating into your cost of goods sold (COGS). The smaller your COGS, the more profit you make on each unit or sale – and that means better cash flow, more working capital and bigger profits.

Talk to us about improving your spend management

If you’d like to get in control of your expenses, we’d love to chat.

We’ll review your current costs, run forecasting, and help highlight the key areas where expenses can be cut. Then we’ll help you formulate a proactive spend management programme, to reduce your unnecessary spending.

Keeping your cashflow strong in tough times

Small businesses are particularly vulnerable in tough economic times.

When sales are slow, there are still overheads and salaries that need to be sorted.

At First Class Accounts Ovens and Murray, we understand that the key to staying afloat and continuing to thrive during this time is pre-planning and forward thinking.

Here are some tips to help your business thrive in these difficult times:

Get a clear picture of your payroll and planned expenses

It's important to have a detailed understanding of your business's expenses so that you can plan for any potential shortfalls.

Make sure you have a clear picture of your payroll, and any other planned expenses that will need to be accounted for. If there’s even a possibility that there could be a shortfall, it’s essential to meet this head-on.

By forecasting and budgeting meticulously, you'll be able to better understand how you're placed to weather financial strains if or when they arise.

Invoice early

Sending invoices as soon as possible and in advance can help you receive payments sooner. By proactively billing your clients or customers, you increase the chances of receiving payment promptly. Offering a retainer or similar deal to regular clients or customers can also encourage them to book services or make purchases in advance, providing you with a cash flow boost.

Chase payment 

It's essential to follow up on any outstanding payments during tough times. Maintain strong communication with your clients and proactively remind them about their unpaid invoices. By initiating conversations and expressing the importance of timely payment, you can encourage clients to settle their dues promptly. Read 6 secrets to getting prompt payment here.

Talk to suppliers

A little honesty can go a long way. Being honest with your suppliers about your financial situation can lead to more flexible arrangements. Openly communicate with them and explore the possibility of extending a line of credit or negotiating alternative payment terms. Suppliers who value an ongoing business relationship may be willing to work with you to find mutually beneficial solutions.

Review Inventory

Evaluating your inventory can help identify potential cost-saving measures. Look for local suppliers who may offer cheaper alternatives, reducing shipping costs. Additionally, consider discussing alternative products with your suppliers that could help you lower expenses without compromising the quality or value you offer to your customers.

Review your costs

It’s also a good idea to do a general review of expenses. Business costs can creep up, and it’s a great idea to make a time to check on your expenses regularly, no matter what your financial situation. Review all of your regular payments and subscriptions as well as upcoming costs. There may be travel, functions or purchases which you can decide on an alternative approach to.

Talk to the bank or tax department

If you're experiencing tight cash flow, it's important to initiate early conversations with your bank and tax department. By discussing your situation, you can explore available options for financial assistance, such as credit facilities or tax payment extensions. Proactive communication allows you to put necessary arrangements in place and ensures you have the support needed to navigate challenging times.

Need help? 

We can help you implement strategies to protect your business for the long terms and help you alleviate cashflow worries.  Get in touch.

Key numbers to focus on in your business now

As a business owner, it’s always been helpful to have an understanding of accounting – but in the world today, it’s never been more important to have a good grasp on your finances.

With the business world irreparably changed by the impact of coronavirus, the war on Ukraine, and rising inflation, your business is facing a ‘new normal’. Priorities have changed, customer behaviours have mutated and revenue streams have had to evolve and pivot in order to create a viable post-lockdown business model.

To track, monitor and drive your financial performance in this new business world, it’s increasingly important to have a handle on your key financial reports and metrics.

Getting to grips with your financial reports

Whereas in the past, extra cash in the business may have been seen as a surplus that needed to be spent on something, the past three years have shown us that having these reserves is vitally important for the survival and long-term health of businesses.

To truly be in control of this cash, it’s vital that you can dip into your accounts, financial reports and dashboards and ‘see the genuine story’ behind your financial position.

So, what are the key reports to focus on? Let’s take a look:

Budget 

Your budget is the financial plan that's tied in with your strategic plan. In essence, the budget is your approximation of the money it will take to attain your key strategic goals, and the revenue (income) and profits you hope to make during this period. It’s a benchmark you can use to measure your actuals (historic numbers) against, allowing you to see the variances, gaps and missed targets over a given period.

Cashflow Statement 

A cashflow statement shows the flow of money into and out of your business.

Understanding these cash inflows and outflows in detail allows you to manage this ongoing process, allowing you to aim for a ‘positive cashflow position’ – where inflows outweigh outflows.

In your ideal positive scenario, you have enough liquid cash in the business to cover your costs, fund your operations and generate a profit.

Cashflow Forecast

Forecasting allows you to take your historic cash numbers and project them forward in time.

As such, you can see where the cashflow holes may appear weeks, or even months, in advance. This gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt) or going to lenders for additional funding.

Balance Sheet 

Your balance sheet shows you your company’s assets, liabilities and equity at a given point in time.

In a nutshell, it’s a snapshot of what your business owns (your assets), what you owe to other people (your liabilities) and what money and profits you currently have invested in the company (your equity).

Your balance sheet is useful for seeing what stock and equipment your business owns, how much debt (liabilities) you’ve worked up and what your company is actually worth. This is all incredibly useful information to have at your fingertips when making big business decisions.

Profit & Loss

Your profit and loss report - often referred to as your P&L. Your P&L gives you an overview of the company’s revenues, costs and expenses over a given historic period of time.

Whereas the balance sheet is a snapshot, your P&L is more like a moving video. It shows you how your finances are progressing by demonstrating how revenue is coming in and costs/expenses are going out (rather than cash coming in and going out, as you see in your cashflow statement and cashflow forecasts).

There is a range of software and apps that you can use to generate the above reports. For example Xero. 

Talk to us about software and apps to help you with the financial reporting and forecasting for your business

Become a digital business

In the online, connected world that we now live in, it’s important for your business to become a digital business.

Digital technology has revolutionised the options you have available as a small business. There are a wealth of cloud-based solutions and apps to help automate your admin, enhance your productivity, open up your business data and market the company online.

Making the technology work for you

Becoming a digital business isn’t about using technology for tech’s sake. It’s about seeing the huge value and potential of applying digital processes and software tools within the company.

By moving your systems, processes and customer interactions over to digital, your small business can quickly become more streamlined, more efficient and more profitable. And with the ineffective elements of the business removed, you’re ready to grow, scale and expand.

Key benefits of digital transformation include:

Cloud accounting at the heart of the businesss

Cloud accounting moves your bookkeeping and financial management online. This gives you access to your accounts, reporting and key performance indicators (KPIs) through your web browser, on any internet-ready device. You can literally run your finances, invoicing, credit control and bank reconciliation from anywhere with Wi-Fi. And that helps you keep in control of the numbers..

Automation of low-level tasks

The manual tasks involved in company admin begin to eat into your business time. Many digital business tools have elements of automation built in, to help you automate the key time-consuming tasks and become more efficient. Automated bookkeeping, automatic bank reconciliation and automated payment collection all put hours back in to the business and help you do more.

Fintech and payments

Keeping on top of your finances isn’t just about accounting. Financial technology (fintech) tools help you ensure that money is flowing into the business, cashflow is being managed sensibly. And online payments are being made, and collected, automatically – helping to maximise your financial health.

Job management and productivity

Planning and running your operations and project work can be tough. But with software project management and workflow apps connected up to your central system, you’re always on top of the workload and resourcing. Talk to us about which app would work in your business. 

Digital marketing and social media

Most consumers and business customers will begin a search for products/services online. So having a good website, a bold online presence and the right social media channels in place is vital for your sales and marketing strategy. By positioning your brand in the digital space, you make yourself relevant, easy to find and connected to your ideal customer base.

If you’re planning a digital transformation process for your small business, come and talk to us. We’ll help you review your systems and processes, identify your key business needs and recommend the software tools and apps that will build your ideal digital system.

Get in touch to start embracing the digital future.

Automation can ease your business workload

Small and medium-sized businesses are spending on average 120 hours a year on admin tasks, according to recent research into productivity at UK SMBs.

If your people are spending 120 hours wading through tedious and unproductive admin, that’s bad for the business and for your overall efficiency. Fortunately, technology and software automation can go a long way towards automating the low-level admin tasks.

Better productivity through automation

Automation is an important way to ease your business workload, with a host of different business apps and cloud solutions offering ways to automate your admin.

With ‘smart business tools’ increasing in number and choice, software is utilising automation algorithms, artificial intelligence (AI), machine learning and cognitive solutions to help remove the mundane admin tasks from your workflows.

Core processes that will benefit from automation include:

Automated bookkeeping

Just take a photo of your receipts, expenses and invoices and ‘optical character recognition’ (OCR) technology will digitise the output and pull it through into your accounts software. No data entry, no human error and no lost receipts! We can do the rest to ensure your records are accurate.

Automated credit control 

Chasing up debts and late-paying customers takes time. Automated credit control apps track your debtor numbers and automatically sends out customised chaser emails as soon as an invoice is late. This reduces your credit control time, speeds up cash collection and cuts your aged debtor figure.

Automated payment collection

The easier it is to pay you, the faster your customers will pay. Automated card payments and cloud-based Direct Debit solutions allow you to automatically take payment from a customer as soon as an invoice is due. Some solutions will even automate the invoice matching and bank reconciliation process.

Automated reporting and forecasting 

The better your reporting and business intelligence, the easier it is to make informed decisions about your company strategy. Accounting platforms and fintech tools now offer automatic, real-time reporting and forecasting, giving you access to the important numbers and metrics, fast.

Automated digital marketing

Digital marketing is key to raising your brand’s profile. Marketing platforms offer important time-saving ways to schedule and post social media content, or email automation that sends a pre-programmed cadence of emails to specific target audiences within your wider customer base.

Talk to us about embracing the power of automation

If your admin is starting to hold you back, come and talk to us about how automation can pick up some of the heavy lifting as well as giving you the metrics you need for decision making. We can review you business processes and identify the automation opportunities, helping you choose the best apps to drive your business efficiently.

Contact us to discuss your automation opportunities.