Everyone gets caught unaware with their finances – both personally and professionally. Unexpected bills, or circumstances forced on you by others can see you scrambling for cash and juggling your creditors when you least expect it.
Careful planning, however, can help overcome many of the foreseeable payment events that can come up. Tax, for example, has a habit of sneaking around, but we all know when it is due and can take steps to be prepared well in advance.
Not anticipating your cash requirements can lead to an increase in business costs as you attempt to straddle the problem with a ‘quick fix’ solution. Unfortunately, quick fixes come at a premium – higher establishment fees and higher interest rates are the norm when it comes to financial gap fillers – plus the added stress of awaiting approval and hoping to make deadline for the amount you owe.
Prevention is always better than cure – here are some of the best ways to reduce the risk of being caught out on your bills.
Set a budget
Many business owners yawn at the thought of creating a budget, or prepare one and never look at it – but a good budget will highlight the times of the year when your biggest expenses will fall due. Recognising the cash flow road bumps that will hit you during the year will make it much easier to prevent the unexpected surprises that you might encounter.
Allocate a ‘rainy day’ fund
You know when things like tax must be paid, but trying to find a lump sum quickly when it falls due can be challenging. Set aside a regular amount each month for those expenses that you know will come along and present a cashflow issue. That way you have the money ready well ahead of the time it is needed.
Have good insurance
No matter how prepared you are there will always be the unexpected problems, and sometimes disasters, that you can’t anticipate. Good insurance can help you with many of the biggest cashflow threats to your business (fire, public liability) that can cut you off at the knees.
Consider seasonal demands
If you have a ‘high season’ for sales (e.g. Christmas for retailers) this can be both a blessing and a curse. The busiest periods attract the best cashflow but can also result in upfront funding costs for stock or production consumables. Make sure you have funding available for these more demanding periods of the financial year before you need it.
Despite the above plans however you will still face times when you need financing at relatively short notice. Whether you have time to anticipate them or not there is a cost to seeking short term on demand funding that many business owners don’t understand.