Do you have a business which is encountering temporary cash flow difficulties? Personal Loans Now explores 5 ways accountants solve business cash flow problems.
- Implementation of good book-keeping methods
- Auditing business finances
- Preparing a cash flow forecast
- Eligibility for financial assistance
- Exploration of borrowing options
- Locating the right accountant for your business
How Accountants Solve Business Cash Flow Problems
Businesses often face cash flow problems. The key to dealing with this successfully is to see that a difficulty is looming and to take steps before it’s too late. Accountants can play a crucial role in helping their clients prepare for uncertainty. They also put measures in place so that negative cash-flow doesn’t adversely affect the business and lead to insolvency/liquidation. In this article, we consider what an accountant can do to help their clients.
- Implementation of Good Bookkeeping Methods
- Auditing Business Finances
- Preparing a Cash Flow Forecast
- Eligibility for Financial Assistance
- Exploration of Borrowing Options
Business owners, especially of small enterprises, are often trying to wear too many hats. They cope with all aspects of the business from advertising to completing orders. It’s no wonder that many neglect the importance of accurate bookkeeping. This is where an accountant can step in. They can set up a system which is easy to use so that business owners can see at a glance how much they owe, and equally importantly, how much is owed to them by their clients. Once the system is in place, all owners would have to do is to make sure it was kept up-to-date.
A credit control system is a vital element of business record-keeping. This will notify owners automatically of late payments so they can ensure that they keep a healthy cash flow and can meet their financial commitments.
Sometimes an outsider can give business owners fresh ideas about ways to streamline their business operation, cut their overheads and increase their profit margins. With their professional expertise, accountants are in the best position to identify problems in the outgoing and incoming revenue.
Depending on their sector, many businesses have seasonal variations in their work. Accountants can easily carry out a cash flow analysis which will identify when the business can expect a surplus and when it has a deficit. In this way, owners can be prepared for when their takings are down. A cash flow forecast will also be able to pinpoint when there are one-off requirements for the injection of more capital. For example, for the purchase of new equipment. Accountants will, therefore, be able to warn their clients about potential trouble so they can prepare for it.
Accountants can optimise a business’ access to tax relief so that more cash is left for its running costs or to invest in further expansion. They can also keep track of the deadlines for payments of VAT or for income tax. If firms are prepared for these financial commitments, they are less likely to have a negative impact on cash flow.
There are many special grants or long term loans online for which a business might be eligible. However, business owners can often be so concerned about keeping their firm afloat that they don’t have time to research their options. With their up-to-date knowledge of what local and national funding is available, accountants can advise the owner on their best option. Apart from their valuable advice, accountants can help with paperwork so that the application is made with minimum delays.
However well a business is run, there might be times when it needs a quick injection of cash to prevent business cash flow problems caused by a temporary poor cash flow. Accountants are on hand to advise their clients on the options available and which is the best solution. The most important factor is that these options are available at the time when the owners need them. This is why a cash flow forecast is so vital.
The most commonly used are a business overdraft or credit card; invoice financing or an unsecured business loan. Let’s look briefly at them.
A Business Overdraft/Credit Card
The use of a business overdraft or credit card is ideal to cover short-term business cash flow problems. The money owed is interest-free if it is paid back within a month and business owners only borrow what they need. However, because of their high cost, they aren’t suitable for larger amounts of money or for longer than a couple of months.
Also known as invoice factoring, this type of borrowing allows business owners to access sums which are tied up in unpaid invoices. The lender will give fast access to 80-90% of the value of the invoice. This option is only possible for businesses which work with invoices and unsuitable for those which rely on consumers such as retailers.
Unsecured Business Loans
Long-term business loans often require the owner to put up security for their borrowing in the form of company or personal assets or a personal guarantee from the owner. For owners who are reluctant to risk their firm or even their home, an unsecured business loan is an ideal solution. It is only available for established profitable businesses. The lending criteria can also be much stricter because of the increased risk for the lender.
Locating the Right Accountant for Your Business
Apart from personal recommendations, the best way to find the right accountant for your business is through a professional body. The ICAEW (Institute of Chartered Accountants in England & Wales) has a search engine on their website which allows you to search for an accountant by name or by location.
Many business owners are put off hiring an accountant because of the extra expenses it will involve for their firm. However, it’s quite obvious that accountants offers invaluable services, and rather than costing you money could save you money. This is especially true with those that often encounter business cash flow problems. In many ways, an accountant can ensure that this is never a problem because they prepare you for every eventuality.