On the 29th September, we ran a Wired Sussex Breakfast Workshop on cash flow & finance strategies. Jamie Young, Director of Plus Accounting, and Emma Bland, our Head of Operations at Wired Sussex, brought their expertise on finance forecasting & aged debtors. Here are some of their top tips!
Funding gaps are inevitable when running a business, whether you are a small or big company, a start up or freelancer. Preparing for these gaps is essential to nurture the growth of your institution and one of the best ways to plan ahead is to undertake meticulous financial forecasting.
Financial forecasting is key to some important aspects of your business, it allows for in-depth financial understanding of your situation, which means you can get a firm grasp on your margins, cost base and risks. With a well-prepared finance strategy, you can anticipate on any funding gaps and present a solid loan proposition to your bank – it’s definitely something you want to keep on top of!
Jamie suggested to undertake three pieces of financial forecasting: a realistic forecast, which reflects on your current sales/costs, loss/profit, then a negative forecast, which includes half the turnover you are expecting, and a positive forecast which includes double the turnover. That way, you’ll get a 3 dimension overview of your business finances. You’ll be able to calculate potential overdraft, anticipate on future loan needs… and act accordingly! Banks are more likely to consider your proposition if you see them ahead of time. A last minute panic call might look like you are unprepared & don’t own the finance side of your business.
Another key top-tip: keep on top of your invoices at all time. Date them and send them straight away, if payment get delayed, you won’t want it to come from your end! If your business is new or growing fast and you need the money sooner, you might want to consider invoice factoring. Invoice factoring is a partnership with either banks or one-off brokers which allows you to cash in your invoice straight away for a fee.
You will also want to have a system in place to ensure your sales invoices are paid on time. To go after debtors, all you need is a clear process to follow, as Emma pointed out. Choose what your payment terms are (30, 14, 7 days?) and take responsibility! Once a debt is overdue, send them a friendly reminder, or two!
It will often take more than just a single nudge to get your invoice dully paid. Emma regularly reviews Wired Sussex debtors list and send reminder emails out weekly so customers are constantly reminded that the invoice is outstanding. Keep it friendly and approachable – your customers should know that they can contact you to discuss the invoice at any point – and don’t hesitate to pick up the phone if your debtors aren’t responding to your emails!
Consider implementing a timeline for your reminders. For example, if your terms of payment are 30 days, you could send a first reminder when customers hit the 30-day mark, then weekly email from 30-60 days & call-in to chase the invoice at 60 days. After 90 days, you might want to send them a letter or email stating the payment needs to be paid within 7 days. If the payment has still not being received, consider sending a letter including your lawyer stating the debt will now be passed over. Obviously adapt this timeline to the needs of your business (and your own payment terms!), but it might be useful to include an aged debtors strategy such as this one into your work routine.
Finally, don’t hesitate to ask for advice! Some banks have a mentorship programmes which could prove highly valuable for you business. Alternatively, we also run a quarterly series of events with Plus Accounting for our members. Feel free to bring your questions at our next Finance Forum on the 17th October!
Wired Sussex Breakfast Workshops are fortnightly events taking place on Thursdays from 9.00am – 11.00am at The FuseBox. These events are designed to be very practical and to give you access to expertise and knowledge that will help you and your business. Our next session will be: Understanding Your Audience (13th October) and Telling Your Story (27th October).