A Guest Post by Poppy Gallagher
As a sole trader, your cash flow is incredibly important. While you may have had decent profits over the last month, if your clients and customers haven’t paid you, you can still wind up with a negative cash flow. Every pound that you’re owed is effectively a pound you’re down on in your cash flow. Simply put, this means that even if you’re turning a profit you could quite easily be left without enough cash on hand to pay your own bills at the end of the month.
So how do you avoid the perils of a negative cash flow as a sole trader? Are there ways you can avoid debt and manage your cash flow while keeping your business turning a profit? As it happens, yes, there are – here are five tips to help you avoid debt and manage your cash flow as a sole trader.
Keep your overheads down
Your cash flow is determined by the amount of cash leaving your organization – therefore the simplest way of managing your cash flow is by cutting down on your overheads. This is often easier said than done, but it’s always worth taking the time to look for new ways to cut your operational costs.
Switch your office lighting to LED bulbs to save on your energy bill; opt for a smaller office or a home office over a plush room in the city. Need a new piece of office hardware? Try to wait for the big sales such as Black Friday or Boxing Day and make the most of the discounts while they last.
Consider credit control on big jobs
Sadly not everyone is going to be the perfect client, paying bills on time and making life easy for you on the accounting side of running a business. Also sadly, you often have to spend money to make money. When you put these together you can often find yourself paying out money on a project with zero guarantee that your client will pay you when you need the money.
If you find yourself taking on large projects you can see this potentially becoming an issue, make sure you give some thought to credit control. Check potential clients on Companies House before you agree to any work and let your larger clients know that you will be check them with a credit agency before you start on any big-money jobs. If your client is honest and has every intention of paying, they won’t have an issue with this.
Take your time
It can be thoroughly exciting starting up on a new business venture. It can incredibly tempting to rush into your first job and rush the billing and payment steps, only to find out that you’ve missed something out. It can be quite easy to throw open your doors on the first day and take on more jobs that you can feasibly manage, using up all your cash before you can complete a single job.
Start slow and take your time – if you rush the process you will only hurt your business, forgetting to send out invoices and forgetting to charge people along the way.
Manage your stock levels
Holding stock can be expensive. If you’re not selling it, it’s taking up space – if it’s taking up space you’re paying to store it. Whenever you reconcile your bank account you should be reconciling your stock, too. The more often you do this the more often things your hard-to-shift items will be put before your face. If you can see things gathering dust it may be worth selling it back to the supplier. Having your cash tied up in stock you can’t sell doesn’t help anyone.
Be ready to access credit if need be
Sometimes you simply need more cash than you have to hand. In some cases you can simply put it off until your client has paid, though in others this may not be an option. If you need extra cash to help your business venture forth, credit is well worth considering.
If you’re struggling to access credit you may need to consider debt solutions such as an IVA or a Scottish Trust Deed, wrapping up all your unprotected loans, consolidating your debt and giving you more room to spend money on your business.
Poppy Gallagher – I am a finance and debt tip enthusiast I also love to experience different cultures and have a keen interest in adventure. When I am not saving money for my travels I am at my laptop typing away writing about my travels.
