Small Business Tax Advice: How To Avoid Common Cash Flow Problems


Managing cash flow can be troublesome for many SME's in the UK. It is reported that 57% of small businesses owners in the UK experience problems with cash flow every year and one in seven are unable to pay their staff on time.

According to official statistics around 50,000, SME's in the UK fail every year. A paper published by the Department for Business, Energy and Industrial Strategy cites 24% of UK businesses risk failure due to late payments - the highest reported percentage in Europe.

Cash Flow Strategies for Small Businesses

Whilst high turnover and consistent healthy profits are the preferred means of business survival, the majority of small businesses have to rely on a sound cash flow strategy.

Compensate for Late Invoice Payments

Cash flow problems are typically caused by customers and clients settling their invoices late - or not paying them at all. When you consider the number of "business deaths" in the UK is around 12%, there is a strong chance that most businesses will experience unpaid invoices.

When you enter into a contract with a customer, ask them what their companies payment schedule is. It could be the case that they don't settle invoices until the end of the following month.

Also, avoid offering too much credit. If a client has outstanding invoices that exceed a certain amount, you may need to make a tough business call to not provide goods and services until they settle their previous orders.

Whilst tough calls in respect of credit may cause a moment of stress, it could save thousands or tens of thousands of pounds - and that could be the difference between the continuation or collapse of your business.

VAT Management

Another common problem that creates cash flow problems for SME's is poor VAT management. It's important to remember that the VAT you collect from your customers is not your money. It belongs to the tax office.

It can be easy for small businesses to confuse VAT pricing or dip into reserves that have been credited with monies from VAT. Yes, you may have good intentions to pay this back, but if other customers pay the invoice late or not at all, you could be left short when the time comes to settle your tax obligations.

Negotiate Contract Deals with Suppliers  

Together with funds coming into your business, managing cash flow also involves how much you are spending. Is it possible for you to negotiate a better deal with suppliers?

If you've been a long-standing client with a supplier and have a good relationship with them, you may be able to negotiate a better deal. For example, you can agree to pay your invoices sooner in return for a discount.

Cashflow Management Tools For SME's

The easiest way to manage cash flow is to invest in accountancy software that enables you to easily identify key cash flow measurements such as how much cost needs covering on bills that need paying, expected income and overdue invoices.

At Squared Up, we use Xero cloud accounting software because it is simple to use and keeps all your bookkeeping, invoicing, banking and accounts in one place.

Xero incorporates several payment gateways that make it easy for your clients to pay their invoices and has a clear user-interface that makes it simple for you to understand the financial health of your business.

Furthermore, because it's on the cloud you can access it through a web browser or mobile device wherever you are - and even share your accounts records with your SME's accountancy firm.

Get in touch with Small Business Accountants

Squared Up is a small business accountant based in Cardiff, Wales. If you need assistance or advice managing your cash flow or other tax and accounting strategies, get in contact with us today by emailing or calling us on 02922 403308.