Since the lockdown began. I have been running a series of FREE Masterclasses on a Thursday: Thriving in a Time of Chaos. Last week, the subject was business finances and I invited one of the Actually Partners, Nicola Deverson, to join me to talk about what people should be doing to ensure that they are financially fit during these challenging times.

This is a critical issue for all purpose-led entrepreneurs especially at this moment in time and so in this blog I am sharing five of the lessons that Nicola and I covered in the Masterclass…just in case you missed it!

CASHFLOW IS KING

You’ve heard the statistics…80% of entrepreneurial businesses fail within the first 18 months. And you can be sure that in a time of crisis that figure is even higher. We all believe we are going to be in the 20% – but if SO, we need to master our cashflow because one of the top reasons businesses fail is cashflow.

You need to understand it, monitor it and ‘smooth’ it.

Understanding cashflow isn’t that complicated it’s money in and money out. But note that it is ACTUAL MONEY. Sending an invoice doesn’t count until you actually receive the cash.

You need to be tracking cashflow at least weekly and forecasting at least three months ahead – preferably six. That way you can foresee where you might experience cashflow issues and make plans to mitigate them now.

Most of the money that goes out of your business is in regular payments. Monthly bills, payments to suppliers, subscriptions etc. As much as possible you need to try and ensure that you have regular incoming cash so that you’re never in the position of having a profitable business but no actual money to meet your expenses. If it’s not possible to smooth the fluctuations in your income, then forecasting is even more important so that you can set money aside for the times when you know you have more going out than coming in.

PRESSING BUTTONS

Something that will make it a lot easier to track and forecast your cashflow – as well as your profitability – is a decent accounting system.

If you’re still using an exel spreadsheet or a notebook and pen, consider an online package like Xero. Then at the press of a button you’ll know exactly where you stand. Interestingly, having advocated cutting costs wherever possible right now, this was one item of additional expenditure that Nicola recommended. She also said that Xero is ‘fun’…I wouldn’t go that far but it definitely makes preparing your accounts for the taxman a lot easier!

UNCOMFORTABLE CONVERSATIONS

There are two money conversations that many entrepreneurs find uncomfortable. The first one is the sales conversation. Luckily, I’m covering that in this week’s Masterclass on Thursday (9 April) night at 7pm (you can register for that one here)!

The other conversation we dislike is the ‘You owe me money’ chat when a client’s payment is overdue.

Firstly, set up your systems and payments as much as possible to avoid the issue of late payments or difficult conversations. For example, insist on all money (or the majority) up front; or set up automated instalment payments via GoCardless.

However, if all else fails and you have some invoices that are overdue – remember that when people are making decisions about who to pay from a limited budget, the people who actually ask to be paid are likely to be at the front of the queue.

So you need to learn how to have these conversations. Stick to the facts and avoid making it personal. Instead of ‘You haven’t paid your invoice.’ or ‘Your payment was due 30 days ago.’ or ‘You owe me £XXX.’ Try saying…‘The invoice for £XXX issued on X date is now 30 days overdue.’ And then stop talking. Let them do the talking and come to a solution. Ideally they pay. If that’s not immediately possible, be prepared to consider instalments but insist that the money is paid.

SUPPORT

A large part of the Masterclass was taken up discussing the support available from Government and elsewhere. I won’t repeat it all here because there’s a lot of information and it is better to discuss this with your accountant in order to be clear about what you might be eligible for.

One thing I would caution you to consider however is this: taking a holiday from paying VAT or tax may seem appealing right now but bear in mind that this money will fall due eventually and you need to be sure that you’ll be able to pay it when it does. Similarly, Government loans will need to be paid back one day. Just make sure that in taking the help available now you’re not creating an even bigger problem for later down the road.

Nicola is running Monday morning webinars on the support available for clients of her accountancy practice, The Envision Partnership, which she has kindly agreed to open up to Actually community members. 

OPPORTUNITY KNOCKS

I’ve been saying to my clients that what makes great leadership, a great business and great communications during a crisis – is the same as what constitutes greatness in the good times. For example, monitoring your cashflow and ensuring you have strong payment processes in place is just good business sense. This crisis is providing all of us with a reminder and an opportunity to review all the aspects of our businesses that need attention; to consider what could work better, more efficiently, more smoothly…and fix it. If we take up this chance, we will emerge with stronger and better businesses on the other side of this chaotic time.

Make the investment of time and effort now, reap the rewards when the crisis passes.

Let’s ACTUALLY make a difference.

Sara Price

Founder, Actually

April 2020

PS: If you are more of a listener than a read, you can access the recording of this Masterclass here.