Cashflow planning is the most fundamentally important element of finance management we instil in a business.  Ensuring that you bill customers on time, collect money when due, settle overheads, suppliers and salaries and then use the balance to plan for taxes will dramatically improve your ability to survive and thrive as a small business.  

However, the statistics show that, whilst so important, poor cashflow planning is the most common reason for business failure.  Xero have found that only 51.8% of UK businesses were cashflow positive in April 2019. So, how do Nuvem9 address this for customers and enhance the quality of their cashflow planning?

Introducing the Bank Reconciliation

Well step 1 is to have a fully reconciled bank balance at all times on Xero.  A Bank Reconciliation gives you an exact picture of how much cash you have by:

  1. Taking the statement as at today
  2. Adding in any money yet to credit the bank (e.g. a Stripe settlement that is in transit)
  3. Deducting any money yet to be deducted (e.g. a debit card transaction, a direct debit due out but not yet charged, a cheque if they are still used!)

This then tells you the real time value of cash at your disposal.

Why is a bank reconciliation so important for Cashflow Planning?

Xero has a bank feed feature that enables you to see bank transactions in real time.  This means that the days of reconciling a bank to the previous day, week, or even month, is long gone.  This in turn means that you can use your Xero bank balance as a starting point for planning out your ongoing cashflow.  This is because:

  1. The banks are completely up to date meaning in turn that all customer and supplier balances are correct and in real time
  2. This means that you can see exactly who owes you money today rather than reviewing who owed you what at the end of the previous period and spending needless time trying to update it
  3. It also means that you can review your balance sheet and know an exact position on capital repayments on taxes, loans, HP etc.

The single most pure benefit of having Xero in your business is an up to date bank reconciliation. This is key to enabling all other balances to be clear and simple in real time for you.

What do you do next for simple Cashflow Planning?

Knowing that your bank balance is correct, step 1 is to review your customer balances.  Running an Aged Receivables report will show you, by customer, what invoices are owed and when they were due.  This is an instant snapshot of what customers are behind. So what can you do to resolve this?

  1. Send them a statement – again via Xero and at the touch of a button
  2. Contact them and while on the phone email any invoices etc. they claim to be missing – check they have received them while you are speaking to them and ask for a payment date – you can record this on Xero
  3. You can then get proactive and preempt any further issues e.g.
    1. Connect Chaser to Xero – this automates your credit control with human, tailored messaging
    2. Connect a range of payment methods to your invoices to increase the chances of the invoice being paid quickly e.g. payment by credit card via Stripe, by bank transfer online via GoCardless of via a GoCardless direct debit.  

Ok, so what next to make my Cashflow Planning even better?

In summary we have learnt that cashflow planning now forms the basis of:

  1. Accurate bank reconciliations
  2. Streamling cash collection.

This will give you peace of mind that, firstly, bank balances are correct and secondly, money is coming in when due, or ahead of due if you are really on top of things.

Next step is to then manage your outgoings.  These will be one of:

  1. Staffing costs – this is not just the wages paid to employees but the taxes on salaries and pensions. We recommend you account for the full gross cost at salary payment time and not just the net salaries.  HMRC are now much more proactive at chasing and penalising late payments for PAYE and NIC and Pension obligations under Auto Enrolment are equally strict.
  2. Overheads – e.g. rental costs, and taking account of what is due in monthly, quarterly or even annual installments – have you factored this in? Also what is payable by DD and what do you need to pay by bank transfer.  See also if there are negotiations with suppliers on payment terms if cashflow is proving tight.
  3. Trade suppliers – these are your cost of sales, and careful Cashflow Planning around stock balances, reorder times, seasonality etc. is essential to avoid a damaging knock on effect on your sales and revenues.
  4. Capital – if you have funding in your business make sure you provide for the repayments in your Cashflow.  It is also a good idea to review any loan restructuring to reduce the gross amount paid each month. Nuvem9 can assist with that via our wide lending network.
  5. Taxes – you will have taxes due on payroll, VAT on sales and Corporation Tax on profits.  Have you set aside what can be a large outgoing? We recommend monthly planning for VAT and Corporation Tax via a second savings account and keeping that outside of your day to day Cashflow Planning; and
  6. YOU! – have you actually provided for what you need personally and does this optimise the business’ Cashflow Planning.  

Nuvem9 and Cashflow Planning

Nuvem9 operates a modern Virtual Accounting Department.  The USP for our Virtual Accounting Department is proactive Cashflow Planning and analysis for your business.  In essence, our service ensures that we spot your problems before you do using the combination of our systems, our skills and our experience in managing marge global treasury functions.  

We have the day to day insights to be able to do this, not on an annual and quarterly basis dip in when it could be too late to enact new strategies to address cashflow issues.

Cashflow Planning – Summary

Poor performing Cashflow is not something to be afraid of or embarrassed about if you address the issue and proactively stem the problems.  All businesses have cashflow issues ranging from poor tax planning, growing too fast, overselling, poor cost management, bad cash collection, and quite often a series of small simple steps can address this.

Why not speak to us today for a free Cashflow Planning consultation to discuss more?