How to improve cashflow – a guide for small businesses

A healthy cashflow is crucial for small companies to navigate the ups and downs of business. Improve cashflow to help you plan ahead, budget for future spending and handle the unexpected.

If you want to get your business to a better cashflow position, here are seven steps to success.

1. Start forecasting

Take time to look ahead, and you will better understand the cycles and trends within your business. It’s good to take a year-long view, so plan out the costs that your business will need to cover: salaries, stock, equipment, rent, tax etc. over the next 12 months. Then estimate your monthly income for the year.

Work out the difference between the two, and you’ll see how your profits look month by month. This information will help you plan in other spending when your business is in the strongest cash position.

2. Credit control

Keep on top of your invoicing, make sure each bill states your payment terms and follow up any late payments promptly. The best way to get a customer to pay up is to become a nuisance! Don’t be afraid to call and email to chase up a late payer – this is your money and should be sitting in your company account, not theirs.

3. Increase supplier payment terms

A great way to improve your cashflow is to negotiate longer payment terms with your suppliers. Not everyone will agree to this, but if you can extend a term from 30 to 45 or even 60 days, you will have more flexibility with your bills. That way you can pay once income has arrived from your customers.

4. Automate your systems

The power of accounting software can’t be understated. If you aren’t already using online tools to manage your invoicing, tax and banking, take a look. These systems are easy to use, highly efficient and will save you time and money.

5. Stock management

Having too much stock can mean pressure on storage and a cashflow deficit – but not enough stock can affect your supply chain and customer relationships. Taking charge of your inventory is an important step in cashflow management.

6. Reduce your costs

It’s important to take a regular look at where your money is going and whether there are savings to be made. Often fixed assets and monthly subscriptions can add up.

Checking whether you can get a better deal on telephone systems, IT and insurance can often save considerable amounts. Look too at company vehicles and other assets – are their options to lease them rather than own outright?

7. Prepare for the worst

… and hope for the best. It’s always worth having a backup plan in case things go wrong or something unexpected happens. Do you have a credit facility with your bank? How would you manage if you suddenly needed to outlay a substantial sum? Setting up an emergency plan could prove invaluable one day.

Need some help with business accounting and planning? Wootton & Co in the Lune Valley provide the full set of accountancy services including bookkeeping, corporate tax planning and VAT returns.

We support and advise our clients on many aspects of business finance and cashflow, so get in touch with us today.

IR35 tax changes: How will new rules affect contractors & the self-employed?

IR35 in images

New rules were introduced by the government last month which will impact contractors and self-employed people that do regular work for certain clients. Called IR35, this new legislation has been brought in to make sure that contractors pay the same amount of tax and National Insurance as they would if they were employed by their client.

It relates to an area called ‘off-payroll working,’ where contractors working through their own limited company – are acting as a permanent full-time or part-time employee of their client’s organisation.

What are the new rules?

As of 6th April 2021, the client who hires the contractor is responsible for determining whether their contractor is ‘inside IR35’ or operates ‘outside IR35’.

If a contractor provides services to a medium or large-sized private sector client, they will:

  1. need employment status determination from the client, as well as the reasons why they made that determination
  2. be able to dispute the determination given to them if they disagree

If you are ‘Inside IR35’

If the client feels you are operating ‘inside IR35’, you must pay the same tax as an employee. This could also mean that you are entitled to additional rights as an employee or worker (e.g. minimum wage, holiday pay, maternity pay, protection from discrimination). You may be offered an employment contract with your client.

If you’re found to be working inside IR35 but have not become an employee, you will usually have to pay at the end of the tax year any tax deductions or NIC that an employee would have paid.

Am I likely to be Inside or Outside IR35?

The Government has said this will not affect people who work as genuine freelancers. It is targeted largely at contractors who work for a single client for several months or years.

You’re more likely to be considered Outside IR35 if you:

• Work for multiple clients.
• Are paid a variable amount month to month.
• Are paid by the job rather than by the hour.
• Can substitute your labour with another.
• Market your services via a professional website.
• Have your own business insurance and equipment.

You can check the specifics on the Government Website – there is also a Check Employment Status for Tax (CEST) tool to find out if you should be classed as employed or self-employed for tax purposes.
Learning from the public sector

The same ruling was brought in purely for the public sector in 2017. Generally, it led to a reduction in the number of external consultants being taken on by public sector organisations.

I’m a contractor – how can I get around the IR35 legislation?

If you are concerned that IR35 will negatively affect your business, there are a couple of options:

1. Work with small businesses.
There is no change to the rules for contractors providing services to small businesses in the private sector.

2. Work for an umbrella company
If you are a self-employed contractor but operate under an umbrella company, you don’t need to worry about IR35. But being an employee of an umbrella company does not maximise your tax planning and there may be better alternatives.

3. Partner with other contractors
One of the key checks is that you can substitute with other contractors and so an agreement with other contractors may eliminate this issue.

4. Negotiate new rates
Some clients will be open to new ways of working to retain important contract resource.
Note, however, that as an employee you may not be in a worse position. Contracts up to £10,000 can be more lucrative if performed as an employee. Not to mention the added protection and benefits employment brings.

Further help and support

For detailed tax advice and small business support, get in touch. David Wootton & Co are business tax accountants for small business owners like you – we can explore your specific situation and work out the most effective approach for your company.

David Wootton & Co – Lune Valley Accountants. Call us on 01524 236323 or email