Making cashflow conversations easy with small business clients
Della Hudson explores how accountants can make cashflow conversations the norm with self-employed clients.
Since lockdown, accountants have rushed to the side of their clients (metaphorically, not physically, of course) and supported them with furlough claims, loan and grant applications, and cashflow forecasting. Even if a loan application does not require a cashflow forecast it is important for clients to do one to check the affordability for themselves and ensure that they can make the necessary repayments.
However, for a sole trader, such as a tradesperson, these types of services are probably going to be harder to provide. Records are typically poor and out of date which means that there is work to be done on the historical figures before we can even contemplate any sort of forecast.
Business owners have been eking out their cash while on reduced income and waiting for government grants. They are now much more aware of the necessity of keeping an eye on their limited funds. For small business owners, questions such as “how am I going to feed my kids?” or “how can I pay my mortgage?” have been at the front of their minds for several months.
As accountants, the obvious first step is to prepare a cashflow to work out how long existing cash will last and where the next tranche of money is coming from. We have the answers to the questions that business owners are asking, at last.
Software is crucial first step
As always, better records that are up to date will lead to better information that, in turn, leads to better decisions. Bookkeeping software may not seem affordable to all sole traders and yet it is what is needed to grow a small business into something bigger and more financially secure. To help them, emerging fintechs are offering innovative apps that provide business accounts with inbuilt accounting software.
Significantly, these two-in-one products are helping accountants save time and become more profitable; we no longer need to chase clients to reconcile their bank accounts. The unified ledger created means that every time a transaction takes place, it is logged immediately. And just like that, we no longer need to request client authorisation to reconnect the bank feed every three months. Live profit and loss, and trial balance reports are ready at the click of a button to download, saving hours of time on manual data entry.
To help small business owners keep an eye on cashflow, the app produces a profit and loss account and automatically categorises expenses. Invoices can be raised easily on-the-go from within the app, and it provides tax estimates so that profitable businesses can set aside the right amount for their tax – rather than realise, too late, that they’ve spent it.
Cashflow forecasting: Getting the basics right
Good historical information enables us to prepare better forecasts so that business owners can ensure that they have sufficient cash to meet all their bills as they fall due. If cash is going to be short, they have time to plan additional finance or to negotiate longer payment terms.
A cashflow is usually required to access finance. Business owners can decide how to take advantage of the repayment terms for Bounce Back Loans and whether/when they will take a repayment break.
What helps to improve cashflow:
- Raising invoices promptly
- Chasing invoices as soon as they become overdue
- Keeping track of ALL spending to make sure that every pound spent provides maximum value.
- Knowing about future debts such as taxes
- Keeping spending within limits and delaying payments (within contractual terms)
- Familiarity with business numbers to give early warning when something is not quite right.
We can identify which of these actions will be most useful to our cash-poor clients and talk them through what they need to do in practice. Do they need our help to implement a slicker credit control process or do they just need a reminder to do so?
Simpler software as part of a business account is a crucial first step for small businesses to control their finances. Better and up to date record keeping allows owners to make better decisions, and to provide better information for us to advise them. Part of our role as advisers is to ensure that all our clients have suitable software that’s simple to use and makes it easy to incorporate healthy bookkeeping habits into their daily routines.
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Della Hudson was part of the class of 2009. She built up Hudson Business Accountants and Advisers from her kitchen table to a small team of flexible workers with independent premises in Nailsea, near Bristol. The firm ran regular Money Matters seminars and other training and webinars. Della sold the firm in 2017 in order to focus on the...