How to avoid the number 1 reason that businesses fail

I know we should avoid using clichés but cash really is king and from the number of clients that I have met over the last 30 plus years I would even add that it is king, queen, prince and princess with far too many business owners suffering sleepless nights and anxious evenings and weekends worrying about how to pay their bills and quarterly VAT bills for example.

I would not be surprised therefore that most business owners would correctly guess that running out of cash is the number one reason businesses fail but perhaps less of you would then believe that businesses will do that despite the fact that very often they are profitable.  

The truth is that profit and cash are not the same thing and it is sometimes the very successful growing and profitable businesses that can fall prey to the curse of cash flow.

Here at Afresh we want to be a regular part of our client’s team so that cashflow worries are no longer dealt with alone with all of the negative impact that that can have on both work and home life.  Working together we can help and teach our clients how to make things Be BetterTM so that with real-time financial numbers, a well thought out business plan/forecast and an associated cash flow document, our clients can clearly see the road ahead and plan accordingly where additional cash requirements may be needed.

So how can we help you protect yourself?

There are really two critical things you need to get right:

  1. Keeping your finger on the pulse of where your business is now so that you can see where you are going, and
  2. Collecting money fast.

Here at Afresh we love the analogy of running a business is like driving a car.  So a forecast is like a car sat-nav and for any sat-nav to correctly show you where you are going it needs to be constantly looking and telling you where you are now. 

Also, whilst you want to occasionally look in your rear view mirror it is the forward view out of the windscreen that will ensure you safely stay on the right road.  Oh and whilst we are with analogies; cash is of course your petrol so run out and you stop and the faster you go the more often you need to be refilling at the petrol station.

So let’s look at each of the above two critical issues and look at how we can help you use modern technology to our advantage.

Your future is at stake

Better financial information helps you to make better business decisions.  But it’s more important than that.  We’ve seen many businesses fail through lack of financial information and often that absence of information means they simply run out of cash.  

For example, there are business owners who thought they had a profitable business but were shocked to suddenly find themselves with insufficient money in their bank account to pay their staff at the end of the month or were unable to pay their quarterly payment to HMRC because they were unaware that their unpaid debtors balance had been creeping up higher and higher over several months perhaps as a direct result of them being too busy dealing with the higher sales levels that they were successfully achieving. 

Having the right numbers at your fingertipswill give you an early warning system if things are not going so well on the cash front. At Afresh we call these key KPIs like average debtor days (the average time it takes people to pay you) not only Key Performance Indicators but Key PredictiveIndicators.  

What you need is an accounting system that gives you 24/7 access to up-to-date financial information and reports.  And that’s where cloud-based software comes in. With a modern cloud accounting system combining receipt bank, Quickbooks/Xero and FUTRLI you can access your financial data in real time from any device with an Internet connection and find who owes you what and when you need your debtors to pay in order to pay your planned outgoings.

Quicker cash collection

A modern cloud accounting system gives you fast, simple customised sales invoicing that will make your life simpler.  It also gives you the facility for emailing your invoices directly to the customer with the option to attach a statement at the same time. It makes it so much easier to manage your sales and get paid quicker.  

Even better, it allows you to embody payment methods into your invoicing.  For example, paypal or direct collection through gocardless to ensure quick collection of your debts.  It makes it so much easier for you to get paid for the work that you do and will reduce the risk of bad debts, help speed up slow payers and simply end up putting more cash in your bank account earlier.

You can also chase debtors whilst you’re on the go and can even use award winning apps, like Chaser and Satago, that connect with your cloud accounting to help you with tasks such as debt chasing.

If you want to minimize the risk of running out of cash then moving to a cloud accounting system is an important step to take.

Contact mark@afreshaccountants.co.uk if you want help setting up a real-time accounting system that will make running your business easier and make cash flow better.


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