Managing Money

How to make sure you have a grip on your finances.

At AVASK we can help businesses with advice on cash flow and avoiding bad debts. Here are our top-ten tips…

Bad debtors can be very dangerous for new and expanding businesses, having a damaging impact on cash flow.

Here are 10 tips for avoiding bad debts:

  1. Obtain a credit reference on the organisation that you intend to trade with.
  2. Avoid doing business with companies whose credit rating is poor.
  3. Ensure that the other company knows your payment terms at the outset.
  4. Invoice at the earliest opportunity.
  5. State the payment terms clearly on your invoice.
  6. If payment is not received by the due date, send a reminder as soon as possible, and certainly no longer than one week after the due date. It is good practice to have a policy to chase the debt after a fixed number of days following the due date.
  7. If there is still no response, chase up the debt by telephone. This will enable you to determine whether there are any queries on the invoice and, if not, to discuss a date for the settlement.
  8. Write to confirm the agreed settlement date and send by fax or post.
  9. State clearly that the matter will be referred (after the agreed extended period) to either:
    • A debt collection agency;
    • A firm of solicitors; or
    • The county court small claims department.
  10. If the debt is still due after this, keep your word and take action

At some time or other most businesses have to turn to external sources of finance, whether it is to invest in new equipment or machinery, to purchase property, to upgrade technology, or to maintain cash flow while a new product line kicks in.

The cost of external financing can be considerable and keeping it down is a key element in maximising your profitability. Here are three ways in which you can do this:

1. Plan ahead

Plan your financing requirements well in advance - if possible as much as a year before the funds will be needed.

This will give you time to prepare a robust application, shop around for the best source, and negotiate the most favourable terms. Indeed, the mere fact that you are planning your funding so far in advance will earn you brownie points with most sources.

If you leave your funding to the last minute, not only will you limit your negotiating power, you might also give the impression that your expansion plans are not very well thought-out.

Of course business owners need to be agile and respond to opportunities swiftly, but this does not alter the basic fact that quick money is almost invariably expensive money.

2. Make the loaner bid for your business

Approach a number of sources with a well-prepared funding requirement and ask them to submit a proposal. These days, even banks are used to having to bid for your business.

Ask banks for an overall proposal that covers every aspect of your business. But don't just look at the costs - consider also factors such as the quality of the working relationship, depth of knowledge of your industry, etc.

Use your track record to leverage a better deal on charges or the amount of collateral required. Remember, the main concern for a lending source is the degree of risk involved, and a good track record will help mitigate this.

3. Ask for more than you need

Many business owners are overly modest in their funding applications fearing that if they ask for too much it will reduce their chances of success. But it is much worse to underestimate your requirements.

Returning a few months later to ask for a top up not only sets alarm bells ringing about the reliability of your business plan, it is also a lot more expensive to process two applications rather than one.


Cash is the lifeblood of a business. Of course, the bottom line is important, but poor cash flow management can drive even a profitable company out of business, especially if the economy is struggling.

The risk is especially great for new and expanding businesses. For example, if billing is delayed at the same time as stock is accumulated to fill increased orders, you can find yourself short of the cash needed to pay suppliers and employees.

Cash flow projections

A properly prepared cash flow projection can help a business foresee and prepare for potential shortages and surpluses. Cash flow management can also help you:

  • Maintain adequate cash reserves to pay bills, expand the business and make capital improvements.
  • Reduce interest costs through managed borrowing.
  • Increase interest income by transferring funds into higher-interest accounts.
  • Receive discounts through bulk purchasing.
  • Better manage your relationship with the bank and other lenders.

Businesses that prepare cash flow projections usually learn something about their systems, and the process even has some positive side-effects. For example, you might discover that you need to pay more attention to certain customers, or that you can time payments to suppliers more beneficially.

Getting started

A simple system can be set up by creating a spreadsheet to track cash flowing in and out. A more sophisticated analysis might include monthly cash projections for the next 12 to 18 months.

First, forecast your operations on a monthly basis for the period involved. You can project the cash coming in based on sales and the collection process. Material purchases are based on the amount needed for sales, adjusted according to variations in your stock levels as a result of turnover. Finally, payments to suppliers and expenses need to be taken into account, based on the payment due dates.

Once you've projected your cash flow based on this forecasted data, you can budget for capital expenditures, unusual sources of cash or other things that might affect cash flow.

A cash flow forecast can help you manage debt more effectively, maximise your return on excess cash and ensure that funds are available when they're most needed.

Every business needs to have a good record retention policy. Failure to retain documents for the use of HM Revenue and Customs can result in significant fines. Other records which have no statutory retention period may be essential in later years for historical or research purposes.

Either way, you must ensure that you manage your business documents effectively, and, above all, that you keep the right ones.

Which records should be kept?

The documents that should be kept will vary from business to business, according to size, status and in some cases, personal preference. Some items should be kept permanently, such as deeds and title papers, accounting ledgers, incorporation documents and all of the business's statutory records. Others can be discarded after allocated periods of time.

The following is not an exhaustive list, but a rundown of common records that will be relevant to the majority of businesses.

Tax records

All business records must be kept for five years from the last date by which the relevant tax return was to be filed. But remember, this is only the minimum statutory requirement. You may wish to keep records for longer periods.

As a taxpayer, you will need to keep all documents related to money received and expended in the course of business, and any records concerning dealings in goods in the course of trade.

These include:

  • Daily takings, including paid invoices, credit card receipts and cheques.
  • Expenses, including purchase of capital items (such as machinery), general overheads (such as heating), materials and stock.
  • Banking and cash transactions, including withdrawals, payments in, bank statements, cheques issued and cheque book stubs.
  • Amounts paid into the business, such as loans and grants from personal sources.

You may also wish to retain personal financial papers for a similar time.

VAT records

VAT records must normally be kept for six years after the current date. Relevant records include:

  • VAT accounts
  • Annual accounts, including profit and loss accounts
  • Orders and delivery notes
  • Purchase and sales books
  • Relevant business correspondence
  • Cash and other account books
  • Purchase and copy sales invoices
  • Credit/debit notes issued or received
  • Bank statements and paying-in slips
  • Import and export documents

Accounting records

Records used to compile annual accounts normally need to be retained for two to three years. Annual accounts that have been audited should be kept permanently.

Wages and personnel records

Documents related to wages, such as P45, must be retained for six years. Records of income tax, pay details and payroll, as well as national insurance contributions and annual earnings summaries should also be kept for this period.

A confidential personnel file for every employee should be maintained. This will include such items as personal details, application forms and offer letters, national insurance number, payment details and holiday/sickness information. For legal and reference purposes, this file should be kept for seven years after the end of the person's employment. You might also include medical records, accident reports, expense accounts and overtime details.

Other useful records

It is often useful to keep some commercial records for reference purposes. For example, old contracts, customer orders, enquiries and other correspondence could all be useful when drawing up statistics, dealing with comparable new customers or renewing a relationship with an old client.

Press cuttings, adverts and company newsletters can all be helpful for creating a company image and branding purposes. It is up to you to decide how long these records are kept.

It is a good idea to draw up a timetable for the retention of documents for your own business. Below is a typical example:

Sample Record Retention Policy

Permanent Records:
  • Deeds/title papers
  • Register of members
  • Accounting ledgers
  • Incorporation documents
  • Audited annual accounts
  • Insurance records
  • Pension scheme records
Long term (6 years +)
  • VAT records
  • Wages records
  • Tax records
  • NICs records
  • Personnel files
  • Payroll records
  • Medical records
  • Personal financial papers
Short term (up to 6 years)
  • Other accounting records
  • Company newsletters
  • Press cuttings
  • Accident reports
  • Adverts
  • Old contacts, orders, etc.

In any new business, retaining good financial control is vital.

Achieving it involves:

  • Deciding which areas you need to monitor and how frequently<./li>
  • Generating the numbers quickly and accurately.
  • Sharing the results with everyone who needs to know them.
  • Interpreting the numbers correctly.
  • Taking appropriate and timely action based on your interpretations.

The starting point is to set up a system that enables you to generate accurate reports as quickly as possible. We can help you to set up an appropriate computer or manual accounts system.

Weekly and daily updates

In key areas, such as sales, debtors, cash position, trade creditors, and employment figures, you could consider setting up a system of weekly or even daily updates. These 'flash reports' will give you better control in the short term.

Make sure managers receive the flash reports as well as the monthly reports quickly, and encourage them to share the results with the relevant employees.

Compare forecasts with actual results

One of the most valuable instruments of financial control is drawing regular comparisons between projections and results. Not only does this keep you up-to-date on how your business is doing, it also reveals how realistic your expectations are and how in touch you are with the essentials of your business.

For best results, you could draw up projections for a six-week period and then set new projections at the four-week point.

The key to good financial control is to have an effective system for collecting data and generating accurate and timely reports that are tailored to your specific needs, a service in which we specialise. An effective system can make a considerable difference to your bottom line results.

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