Make sure your business survives those turbulent early days
A surprisingly large number of start-ups fail early on, reveals Josh Smithurst from our cloud accounting team. He reveals some simple steps you can take to ensure yours survives.
There are many things you know you need to consider when starting up and running a business. Then there are also quite a few things that you don't know at the time, but which you pick up and learn. This is how you and your business improve and grow.
In theory, you buy your products or develop your service. Market them to your target audience and build a contact base. Sell your products or services and then repeat, scale and grow. It would be nice if it were that simple!
Businesses face difficulties from all angles and some may cause them to go under. The main reason for failure is that there is no market need for their product or service (42%). The second biggest cause of businesses collapsing is because they run out of cash (29%). If you have founded a start-up, you have a 20% chance of failing in your first year and a 60% prospect of going bust within the first three years. Based on the statistic that over 835,000 new businesses were registered in 2020, 160,000 of these start-ups will potentially fail. The question is what we can try to do to reduce this number.
A key area where businesses are losing cash is from is irrecoverable debt from customers and clients who have purchased goods and services. They do not pay within their terms or sometimes even cannot pay at all. So, you have paid your cash to provide these goods and services and they cannot pay you what is owed when it is due. This is where a lot of start-ups and existing businesses start to struggle. Thankfully, you can take some very straightforward steps towards effective credit control.
How do you keep on top of what is owed to you?
Keep your accounts reconciled to monitor who owes you what. Set up automated emails chasing for payments, thanking customers for their remittance and sending out statements.
How do you know who is creditworthy enough to do business with?
By using risk analysis tools, you can view potential customers' credit information, including their risk band, average payment time and suggested credit limits. With all this information at hand, you'll have fewer sleepless nights knowing you're aware of the history of a new customer and that your invoices are more likely to get paid.
How do you get your invoices paid quicker?
One of the more common ways of getting your invoices paid quickly by customers is by offering a discount for early payment. For example, if your credit terms are 30 days, you might offer a 5% reduction if they pay in seven.
Or perhaps you have landed yourself a large contract with an even bigger customer and they have set the terms of the contract at ninety days. Even if you can raise an invoice straight away, that is a long time until payday. Invoice financing can be an effective way to get the cash quickly in order to cover the outgoings and keep your cashflow out of the red!
These three questions are fundamental to credit control and if you can get your procedures in place, it could be the saviour for your cashflow. To find out more about how Page Kirk can help you with the management of cashflow and customer debt, please call us on 0115 955 5500 or email enquiries@pagekirk.co.uk.