A crash course in cash flow management for micro businesses

British five ten and twenty pound notesSifting through the assortment of failed micro businesses, time and time again you’ll see that poor cash flow sowed the seeds of failure. If mismanaged, poor cash flow can cripple a business.

If you want to come out of tax year 2013/14 in a better financial state than you came into it then, you’re going to need to get excellent with your cash flow management. Knowing the tax facts will help a little as you’ll be less likely to face fines, but above all else, your credit control will need to be top notch.

Struggling on the cash-flow management front?  Here’s some tips and techniques that should get your accounts out of red and into the black.

Get cash in ASAP

At the crux of good cash-flow management is getting cash in quickly. Cash is the lifeblood of a business after all.

Going against conventional invoicing can help in this. It’ll take some nerve, but try asking for payment upfront instead. As long as your product or service is excellent, then your customers and clients should oblige. Believe strongly in what you’re offering and demonstrate to potential clients that it’s only fair that they pay up front, so as to reimburse the costs you’ll incur adding value to their business.

Elsewhere, do some sums and see what you can offer customers and clients in the way of discounts. Offer these to customers who bulk buy or commit to your service for a long period of time. Meanwhile, if you’re a service business, consider establishing a rolling monthly payment process. You’ll then know what’s coming in and when.

Using these sorts of methods, you should get money flowing into your accounts sooner, rather than later.

Where it’s reasonable, delay your outgoings

This will sound a tad hypocritical given what I’ve just suggested, but if funds are particularly tight, try where possible to delay your outgoings. See if you can get extended terms and, if needed, negotiate them when and where they’re possible.

That said, if you’re in a favourable financial position, get paying your debts promptly. Some good will can go a long way and likewise, be prepared to help your fellow businesses out should they be in similar payment peril (as long as they’re not a competitor!).

Also, always look at what you can outsource. Bringing in equipment and staff can prove costly, so try to avoid these big payments unless you’re confident you’ve got the financial capacity to cover all the costs.

Continually forecast your finances

This is integral to achieving a healthy cash-flow position, as it ought to better inform your cash-flow management strategy.

Through projecting potential income and then contrasting it with potential expenditure, you’ll be able to gain a better picture of how your future finances might look. Sometime should be set aside to do this every week, if not every month, as it’ll provide you with a better picture of how strong or weak cash-flow might be in the coming days, weeks and months.

Done correctly, forecasting can illustrate when a change in tactic might be needed, ensuring that you’re suitably equipped to bridge a difficult period ahead and helping to avoid a worst case scenario such as liquidation.

And finally, audit your tax efficiency

Interlinked to achieving a good cash flow position is being a tax efficient business, as it’ll help you to achieve peak profitability.

As I wrote a couple of months ago, there’s a number of company structure options available to the micro business, operating as either a sole trader, limited company or partnership all bringing their own benefits and drawbacks.

The size of your micro business and the stage of its development will dictate which is the most appropriate for you and it’s something that you should continually examine, as the appropriate structure could make your cash flow position that little bit rosier.

Using all these collective methods, you should spare yourself from becoming yet another cash-flow casualty. Tax year 2013/14 might be a tumultuous one, but with good cash flow management, knowledge of the tax facts and accountancy organisation, you’ll stand a better chance of seeing it through.

See you on the other side, micro businesses!

Mark James

Mark James is an in-house Writer for Crunch, accountants for contractors. He specialises in small business and has aspirations of his own start-up one day.

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  1. Cash is life blood of any business and it is even more so for small and micro businesses. It doesn’t take long for them to get in trouble as a result of poor cash flow management. That is why it is imperative to have good cash flow management techniques. Your techniques can go a long way towards that. I would also add that you should be monitoring the cash flow like a hawk – on a daily, weekly and monthly basis. It also help to have a cash cushion in the form of line of credit with a bank for emergency cash needs. As we have all learn from 2009 recession you never know when the cash situation will become dire.
    Harry recently posted..Do not Undersell – How to Set Prices for Maximum ProfitMy Profile

  2. I ask for payment or part payment up front before I start work. It sorts out who’s serious. The only time I did work without receiving the advance payment (because of an impending 31 January deadline) it worked out badly.

    I’m asked a lot for cash flow coaching. It’s can you pay the bills when you need to. It doesn’t just apply to businesses. Think of those people who couldn’t pay their mortgage when Natwest’s systems went down. A lot of the standard advice doesn’t apply if you’re self employed, so sometimes it’s really helpful to have someone saying ‘it’s ok to save for your business before paying off personal debts’.
    Rosie Slosek recently posted..3 Reasons Tax Returns Belong With CakeMy Profile


  1. BizSugar.com says:

    A crash course in cash flow management for micro businesses…

    Sifting through the assortment of failed micro businesses, time and time again you’ll see that poor cash flow sowed the seeds of failure. If mismanaged, poor cash flow can cripple a business….

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