The cashflow ‘tipping points’ every small business needs to spot

What warning signs do you look for to know you may be facing a cashflow crunch? Three founders share what gets them worried

It’s a common tale of woe for textile business founder Lorna Syson, whose company bears her name. “The main problem I get is when people don’t pay me on time,” she says.

“Most of my manufacturers are quite small UK companies, so I make sure I always pay them on time or else they end up not being able to carry on.

Customers tend to understand that and which makes it easier when it comes to receiving payments. “But every now and again you get someone who does just not pay and you’ve already earmarked their money to pay someone else in the flow.” For her, if this happens and it’s a significant buyer, she has a problem.

Neil Westwood, founder of Magic Whiteboard, has around 130 customers that owe a combined £80,000. But if the number of debtors reaches 180 it acts as a flag to chase harder and get the list to a more manageable level.

“That’s when we become more proactive,” he says. “We send email reminders fortnightly and also ring people up.”

Doing the management accounts each month is a discipline Westwood takes care of himself. “It is a bit of a chore; I don’t like doing it. But I do do it so that I get a feel for what’s going on in the business. I could easily hand that to the accountant, but then you lose sight.”

For Wonderush.com founder Nelson Sivalingam, knowing and calculating what the potential financial risks for the business are is paramount.

It could appear that Wonderush’s fixed overheads are high, especially compared to what the company is bringing in, but as he explains, it’s a necessary upfront investment.

“The same team that’s generating thousands of users could be generating tens of thousands of users, at which point it seems like a small team generating a lot of revenue.”

In addition, the cost of sale is what is paid out to activity providers for the lifestyle subscription service, which remains manageable providing not every member becomes a ‘super user’.

This film was produced in partnership with Sage One. For more business insight and tips to keep on top of cashflow and small business tax visit the Sage business blog http://uk.sageone.com/blog/.  

For a free trial of Sage One please visit http://uk.sageone.com/products/.

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