How Businesses Can Improve Cash Flow Without Borrowing
When your business has cash flow issues, you want to plug them up as soon as possible. The longer your running costs are more than you can handle, or you’re not getting the money that you need to sustain yourself, the more those problems can compound, leading to debt that goes out of control. However, borrowing is not the only way that you can improve your cash flow when sales aren’t able to meet your needs alone. Here, we’re going to look at some of the options that might be available to help you get your cash flow back in order.
Consider Asset Financing Instead Of Buying Outright
When it comes time to buy key assets for your business, such as vehicles, machinery, IT systems, or specialist tools, the urge may be there to buy them outright in cash when you have the money for it. It can help you save on their overall costs, but you need to consider how much your business can take the financial hit right now. Buying vs. financing equipment is all about whether it makes more sense to take a bigger cost hit now or to spread the financial burden over time, and the answer to that largely depends on your finances as they exist, and whether or not you might run into problems of keeping available for wages, stock, and other day-to-day operations.
Look For Grant Funding And Business Support
When you need a cash injection, what’s better than getting one that you don’t have to pay back? That’s one of the reasons grant funding can be a very attractive alternative to borrowing in the first place. Local authorities, innovation bodies, regional growth programmes and sector-specific organisations may offer funding for training, sustainability, technology adoption, research, exporting or job creation. Indeed, these grants are often competitive and only available to certain businesses that fit the criteria, but keeping your eye on funding platforms throughout the year could help you find those that apply specifically to your business, so long as you’re able to nail the application process, showing the commercial benefits of receiving a grant.
Improve Your Tax Planning
One of the clearest mistakes that businesses make with their finances is waiting too long to plan out their taxes. You could potentially improve your cash flow by reviewing your position, expected profits, capital purchases, and the reliefs available to you throughout the year. It can, for instance, help you make better-timed purchases to ensure that you’re maximising your tax benefit, as well as avoiding surprise liabilities. Regular forecasting also helps businesses set aside the right amount for Corporation Tax, PAYE and VAT instead of scrambling later.
Find Specialist Tax Credits Where They Apply To You
There are a lot of tax credits that your business could benefit from, alongside typical things like relief on pension contributions and expense allowances. For instance, if your business invests in researching solutions for specific problems not currently addressed by the market, or innovating in new products that provide better solutions than currently available, then you could benefit from R&D tax credits. Meanwhile, there are tax incentives for businesses that operate in creative industries, helping them to improve production quality or new projects. For a third example, businesses that invest money in remediating contaminated or industrial land could get tax help to reduce the costs of those property projects, as well. It may be worth working with a tax accountant to find the advantages that you might not have fully considered yet.
Manage Your VAT Strategically
Many growing businesses can underestimate just how much strain VAT can cause when it’s not managed properly. Businesses should ensure they are on the most suitable VAT scheme, submit returns on time and avoid treating VAT collected from customers as available cash. Depending on turnover and circumstances, options such as the cash accounting scheme may help because VAT is paid when customers pay, rather than when invoices are issued. It is important to research your options carefully, as some, like the flat rate scheme, may suit some smaller businesses, but might not be financially beneficial to others. Bad habits such as late invoicing, slow collection, and poor VAT forecasting can all drag on your cash flow, so take the time to plan it out properly.
Focused On Your Accounts Receivable
One of the biggest problems for businesses facing cash flow issues is not getting the money that is, by rights, already theirs. We’re talking largely about the money owed by clients, such as late or missing invoice payments. Collections can help you recoup these losses, but they are also quite expensive to manage. As with many things, prevention is often better than the cure. Using invoicing software can help you prevent late payments by ensuring you have consistent contracts that lay down policies on expected payment dates as well as late fees, and can help you set communication reminders that ensure clients are reminded in advance of payments, as well as when they miss them.
Use Pension Contributions Well
When it’s considered as a part of your wider compensation and remuneration strategy, pension contributions can help a great deal with cash flow. If you’re looking to support your staff in the most tax-efficient way, pension contributions tend to offer more relief than extracting money through salary or dividends, especially for directors and senior employees. Not only can investing in greater pension contributions instead of wages result in reduced taxable profits, but it can also help business owners and staff meet their long-term wealth goals, which can improve retention and morale across the business. This does not create instant operating cash in the same way as collecting debts faster, but it can reduce future tax exposure and improve the efficiency of how profits are used.
Knowing the various controls at your disposal when it comes to your cash flow can help you not only get yourself out of hot water but also run a much more financially efficient business across the board. Take the tips above in mind and see if you can’t make some financially savvy decisions.