In these difficult economic times managing cash flow is the No. 1 challenge for many businesses. The following are some cash flow tips which may be of benefit to your business.
- If you haven’t already done so review all costs and overheads and identify where cut backs can be made.
2. Prepare a forecast of all fixed and variable cash inflows & outflows. This summary should be monitored and updated regularly.
3. Taxes General:
- File all tax returns online to avail of extra time to file and pay your liability, as well as improving administration efficiency
- File early to get refunds
- File on time to avoid unnecessary interest & penalties
- If you pay by direct debit review regularly to ensure you are not under or over paying. Correct any underpayments before year end to avoid penalties.
- Ensure you are claiming all tax credits
- See SEI List for Energy Efficient Products, which qualify for accelerated capital allowances
- If you are setting up a new business, register for VAT early. You can register before you start to generate sales. If you are not registered you cannot claim VAT on pre trade costs.
- Pay attention to invoice dates. If you invoice a customer at the end of your VAT period, your VAT liability is due the following month although you may not have been paid. If you can invoice the customer at the beginning of the month/ VAT period instead you will have more time before the VAT becomes payable.
- Cash receipts basis- if your business qualifies, this basis will aid cash flow as you will not have to pay VAT on sales until you are paid but can claim VAT in purchases as incurred.
- In some cases it is possible to file your VAT return quarterly, bi annually or even annually. Filing on a less frequent basis will save administration time and may aid cash flow. If you are generally in a refund position you should file on a more frequent basis.
5. Employment & Taxes:
- Businesses face a long wait for refund of redundancy rebates. Seek to have outstanding rebates offset against current tax liabilities.
- Revenue Job Assist Scheme- Double deduction for wages and employers PRSI for individuals unemployed for more than 12 months
- Employer PRSI Incentive Scheme- 12 month exemption on employing certain unemployed individuals
- FÁS Apprentice Scheme
- Lower BIK charge on energy efficient cars
- If you have made redundancies/ pay cuts reduce payroll tax direct debits accordingly
6. Corporation Tax:
- If you company has losses these can be carried back to prior years- 2 year deadline
- If profits are falling base preliminary tax on 90% of current year rather than 100% of prior year.
- Holding excessive levels of stock is effectively tying up cash. Apart from the cost of the stock, other costs include management, storage, insurance and obsolescence. Determine the minimum level of stock necessary to run your business.
- Calculate stock turnover regularly. Stock Turnover= Turnover/ Stock. Low stock turnover means stocks are too high.
- Negotiate with suppliers. Many suppliers have now abolished minimum order quantities. Try to buy on a sale or return basis and for suppliers to pay for delivery costs.
- Compare inventory holding cost with the cost of not holding it i.e. missed sales, bulk discount, delivery costs etc.
- Develop rigorous credit control procedures
- For new customers seek references, cash upfront for initial purchases, credit rating, do company search on CRO.
- Set credit limits for all customers
- Regular review of all debtors
- As soon as a debtor looks like they are in difficulty enter negotiations to set up a payment plan and stop supply if necessary.
- Take payment by EFT/ Credit card rather than a credit account
- Make sales subject to retention of title
- If necessary take legal action
- If you are not already doing all of your banking transactions online, address this today. The cost of writing a single cheque is €1.65 whereas an online transaction costs €0.12.
- Ensure you are getting the best rate on any cash reserves.
- If you are setting up a new business look for the free banking period usually offered to new businesses.
- Using a business credit card to pay for transactions will extend the credit period.
10. Lease rather than buy assets:
- You will have the benefit of paying for the asset over a period of time rather than a large initial outlay.
- Also you can write the cost off against your taxes over a shorter period- 3 years rather than 8.
11. Energy Costs:
- Ensure all light bulbs in your business are energy efficient.
- Put lights in common areas on sensor.
- Take the necessary steps to ensure your building is well insulated and install heating controls.
- Shop around and compare provider costs paying particular attention to standing charges.
12. Rent: Negotiate with your landlord or if as a result of downsizing you have spare office space seek a tenant.
13. Stationary: Stationary costs can be quite significant. Stock should be well controlled to avoid pilferage and staff should be encouraged to print only when necessary.
14. Insurance: Shop around when the time comes for renewing business, office and vehicle insurances.
15. IT & Telecommunications:
- Consider implementing a new software system to improve efficiency and financial reporting
- Shop around to ensure you are getting the best telephone & internet deals to meet your business needs. Consider bundling mobile, landline and broadband into one package
- Communicate to staff that work mobile and landlines are not for personal use and that personal use will be recharged.
- To improve staff efficiency, control internet usage so that certain websites are completely blocked or only available at lunchtime.