‘Hi-tech helps to keep the customers coming’
Business Masterclass in The Times
BY CHRIS PARTRIDGE
PUBLISHED 24TH APRIL 2012
To read the online version
Controlling cash flow is one of the most insidious problems for small businesses, because it creeps up on you unawares. Even a bumper month can end with not enough in the bank to pay the staff if a big customer delays payment or an unexpected cost arises.
Thanks to advances in technology, there are now many powerful and easy-to-use software tools available for this tiresome but essential task. And many of them are free.
The simplest approach is to create a spreadsheet of incomings and outgoings for the year, at intervals of a week, or month, or whatever is most useful for your business. Make sure that your software can be set to cope with seasonal variations, otherwise it may assume that your Christmas card business will make a twelfth of its profits in June.
The essential thing is to predict when money actually comes in or goes out — not when invoices are posted or received. It is also vital to include everything, including interest on loans and rent. The more comprehensive the figures, the less likely you are to face a nasty surprise.
There are many spreadsheet templates available to download from sites such as businesslink.gov.uk to help to ensure that nothing is left out of the calculation.
Most small business accounting systems, such as Sage Instant Accounts or Intuit QuickBooks, include cashflow-prediction software. Using an accounts-based system lets you import the figures needed directly, improving the accuracy of the prediction as well as taking much of the labour out of it.
Powerful cashflow services are becoming available in the Cloud, with internet services that not only help to predict cashflow but also offer more flexible and cheaper ways of overcoming cash problems. At inDinero.com, for example, businesses can automatically download all the transactions from their corporate bank accounts to paint an instant picture of their historical cashflow and use it to predict it in the future.
Another pioneering internet-based accounting system with built-in cashflow prediction features is KashFlow.com, based in London. It includes lots of automated features designed to take the load off hard-pressed small business owners, including raising invoices and chasing payment. It costs just £16 plus VAT a month, which includes customer support.
Cloud services aimed at helping small businesses to survive cashflow crises are also emerging. Known as “crowdfunding”, the online services exploit the power of the internet to put small businesses in touch with hundreds, sometimes even thousands, of investors both large and small to build up the sum required in a matter of days.
The low transaction costs and the element of competition mean that interest rates and fees compare favourably with the banks, both for investors and borrowers.
MarketInvoice.com, for example, enables entrepreneurs to auction invoices to investors rather than take out bank loans to cover the period until the invoices are paid. The process is quick and easy and the fees range from 1 to 2 per cent. MarketInvoice.com also takes a 0.5 per cent arrangement fee.
Traditional loans can take months to extract from traditional banks: at FundingCircle.com the wait is a maximum of two weeks. The site enables businesses to put their loan requests online for investor members to bid on. The applicant can either accept the funds when the amount and terms are fulfilled, or wait until the end of the two-week auction period if they want the best deal.
Small start-up operators who often have difficulty explaining their proposition to bank managers have found the ability to go directly to tech-savvy investors a boon.
For innovative proposals that strike a chord, the payback can be spectacular. In the US, where crowdfunding is now well established, a small company making digital watches applied to Kickstarter.com, a crowdfunding site, for $100,000 to fund the development of a new model called Pebble, which links with your smartphone to put e-mails, etc, on your wrist. Within a month they had raised $5 million.