This morning it’s bright and sunny and the sky is a gorgeous azure blue. I love days like this, but I especially appreciate them at the end of a long winter such as we’ve had this year, where it has been dull and rainy for months. I don’t mind the cold as long as the sun shines, but rain and cloud and low light levels make me feel more and more gloomy as the winter drags on.
You might be wondering what this has got to do with accounts and bookkeeping – well, cash flow is the answer. How grim it is when you have to live in your overdraft and how much nicer when the sunshine of a healthy bank balance is yours to bask in.
Many of my clients judge the health of their business by their bank balance – if you started your business yourself (rather than, say, inheriting it from an older generation) you probably do the same. I assume this is because many most of us run our personal finances the same way. We know we should plan but we will do that next week when we are not so busy…
There is a big problem with this though – your bank balance is a snap shot of now. Today might be good – a few clients have paid and you have plenty. Tomorrow could be very different – in come a couple of large bills, the corporation tax is due and OUCH! Time to phone the bank for an overdraft, or even an extension to the existing one.
This feast and famine approach leaves you at the mercy of your cash flow with false security one minute and excess anxiety the next. What can you do to change it? There are lots of things but my number one tip is use your savings account. Better still, open several so you can use them like jam jars, squirrelling funds away for VAT, tax, rainy days, holidays – whatever you will need. Every time you receive funds from a client, remind yourself the tax is not yours and transfer it straight to the savings account. If you are VAT registered, put that in a separate account too.
And here’s a bonus tip – start using a cash flow forecast. It will cost you time (and/or money if you get someone else to do it) but the control it will give you is worth it.