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Managing Finances and Stock

Types of Banking

Like everything else in the business world these days, banking can now be done online or on the telephone.

Because of this, you can check your accounts on a daily basis and at any hour of the day to see whether money has come in or gone out, thereby avoiding charges for going overdrawn.

In addition, you may be able to download information from your online account directly into your bookkeeping software, saving you even more time. Your bank may even offer free compatible software as part of its business start-up accounts.

However, the human touch can never be underestimated, so, if you’re looking for a bank, shop around and see if you can find one where there is a relationship manager you can talk to if you need advice. It’s also much easier to swap business accounts these days and many of the bigger banks are offering cash incentives to get your business, so don’t just opt for the first offer you see.

Bookkeeping

Similarly, the days of ledgers are now behind us, although the business’s books still need to be kept up-to-date. However, these days, simple accountancy packages are available to make bookkeeping a relatively simple exercise.

Most accountancy software packages allow you to:

  • Control your business finances and cash flow
  • Manage VAT, tax and national insurance, including completion of your VAT return
  • Produce your annual accounts
  • Manage your profit margins
  • Manage and record your stock levels
  • Keep accurate records of your customers and suppliers
  • Identify late payers and reduce the risk of debt
  • Run your payroll
  • Track your credit card payments and record cash sales
  • Automatically reconcile your books with your online bank accounts.

These packages are generally inexpensive and are very cheap to update. Apart from saving you time and therefore money, they also allow you to work from anywhere you have an internet connection.

The beauty of having the books in a recognised software package is that you can literally pull off reports at a click and can give prospective lenders all the information they need without spending hours going through paper files.

Automated accounts are also a great tool for forecasting and budgeting, which means that you have a better idea of your finances when you’re planning potential purchases.

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Managing stock and credit

Technology can also be beneficial for stock control and there are a huge number of software packages on the market to help with this. Of course, some business owners still prefer to keep a manual record and it depends on your style as to which method you use, or maybe even a combination of both.

Whichever method you choose, it is vital to know what stock you hold and whether any supplies are running low, as too much stock equals dead money and running out potentially equals losing customers.

A regular stock-take will help to keep the best possible level of stock, as will a good relationship with your suppliers, who may be able to help if you get into a jam. However, as with any relationship, don’t call on their goodwill too often – better to manage your stock levels effectively.

Managing cash flow

This is potentially one of the hardest tasks you will face when running your business and the company graveyard is littered with the corpses of businesses that were viable on paper but couldn’t manage their cash.

The ideal is to always have enough in the bank to pay bills on time, which technically is easy, if you charge more for your goods or services than you pay to supply them.

However, if you don’t keep on top of the money that is due in, you can quickly find yourself paying out until the pot is empty and then facing bank charges or fines.

To avoid this situation, there are several things you can do, such as charging interest on late payments, employing a good credit controller and setting up as many ways of payment method you can think of, as the more ways a customer has of paying you, the more likely they will pay you quicker.

You also need to make sure that your books are up-to-date, as if you don’t know what you’re owed, you can’t chase it. Similarly, if you don’t know how much you owe, you can’t make provision to have that cash ready and if you pay the taxman late, for example, you have to pay a penalty on top of the original amount.

In case of emergencies, always have a contingency plan, such as an agreement with the bank that you can have an overdraft for a fixed period should you need one.

And while we’re on the subject of agreements, talk to your suppliers and develop the sort of relationship where, if necessary, you can ring them and explain that you need a bit longer to pay. Most will be amenable and all will respect the fact that you’re being honest.

If in doubt, talk to your accountant about other ways you can manage your cash flow, as he or she has experience of other small firms and will probably even know your suppliers and customers.

Credit

One thing that can hit cash flow hard is a customer going bust on you, as you have literally banked on that money coming in. Of course, no one wants to go under but sometimes businesses can fold through no fault of their own and can take others down with them.

To avoid being a victim of this, make sure that you credit check new customers thoroughly and also keep an ear to the ground in the trade for rumblings of trouble with even long-time customers.

Of course, you don’t necessarily have to extend credit to new customers and some may not want it. You could always set up a monthly repayment scheme, for example or offer better terms for those who pay up front.

However, if you have decided to offer credit terms, then, as a minimum, all new customers should be asked to fill out a credit form, which should ask the following information:

  • Full name of the business and the customer
  • Company information such as type of business and number of employees
  • Amount of credit required
  • At least two trade references
  • Bank details
  • Length of time the business has traded.

Meanwhile, if the potential customer is a limited company, they should also supply:

  • Company registration number
  • Name(s) of directors and date of formation

While this isn’t a failsafe, it will give you some peace of mind but, if you require more, ask a credit referencing company or your bank for a credit report. It will cost you, but it might be worth it in the end.

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Recovering bad debts

If you have tried the usual methods of calling, emailing or even turning up at a customer’s premises and you still haven’t got your money, then you need to employ professional help.

Your solicitor or debt recovery company will firstly send a ‘letter before action’, which outlines the nature of the debt and the requirement for payment. The letter will state that if payment is not made within a certain number of days, court proceedings will begin. This is often enough to jolt a late payer into action, at minimum cost to yourself.

If the debtor still does not pay, you will need to submit a claim form. You will incur costs at a rate based on the amount you are owed, and going to court should always be a last resort, but if you have stated your intention clearly in the letter before action, the debtor will be liable for your costs.

When the debtor receives the claim form from the court, the court proceedings are officially started. The debtor will also be sent a response pack to acknowledge or deny the debt.

If the debtor fails to respond to the claim within 14 days, then you can obtain a judgment, which requires them to make a payment. This also applies if the debtor disputes the claim but you have firm evidence to defend it (for example proof of a returned direct debit).

However, you can still talk to the customer and come to an agreement at this stage using the court’s small claims mediation service, as long as the debt is less than £10,000. You may also be able to get some of your court fees refunded if you settle out of court before the hearing..

However, if the hearing does take place, an official will judge whether or not the debtor must pay, which you will find out within 21 days. If the claim is upheld, the debtor is usually ordered to pay the debt, interest and costs.

If the debtor still does not pay, they will receive a County Court Judgement (CCJ), which remains on record. You may then take action to secure payment, including use of a bailiff to seize goods. In addition, if you apply for a court order, the court may decide to freeze assets or money in an account, impose a garnishment of salary on the debtor or even put a charge on the person’s land or property.

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, neither the authors nor the firm can accept responsibility for loss occasioned by any person acting or refraining from action as a result of the material.

© Copyright JE Consulting 2014. All rights reserved

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