Cash Flow Management Strategy
I wrote a post back in September last year having a bit of a moan about cash flow. The summer holidays had taken their toll with two months of high personal and business spending and a reduction of agreed campaigns and blog work. I was at rock bottom of my business current account plus I had a £2k overdraft to repay. I was not doing well with cash management, yet three months prior I had an abundance of cash in the bank (but I spent it).
A phonecall was made to my bank, Barclays, about a business overdraft. After a long conversation they agreed to offer to me an overdraft at a silly high interest rate plus a flat monthly charge. I chose to not take the overdraft offer and fought to turn up the income dial.
A positive strategy
Now it is eight months later I have an update to a more positive cash flow management strategy. I have two good years of monthly turnover to look through with enough data to spot trends of when cash will be flowing and when it will be tight. I urge you to do the same. When are the good months? Do you have any time where cash flow is tight for a few months in a row? The aim is to have enough money banked to take the stress flow of lower cash flow away. My accounting books are written on a cash basis, so I count income and expenditure as and when it is paid to me or paid out from me.
There are always ups and downs with cash flow when you run a business. You may have one month where you might be owed thousand’s but few invoices are paid. It’s a difficult one to control and smooth out as you never know when the blog campaign work is going to come in and affiliate income is often paid two to three months after the sale has taken place.
The cash dream for me is to agree regular monthly work, work to a retainer deal with brands. This will mean a certain amount of income will be guaranteed every month or for as long as the contract term is.
The Importance of a Business safety fund
Looking back at last year after the summer holidays my cash flow picked up. My earnings for September and October allowed me to pay back the overdraft. November was a bumper month which allowed a safety fund to be set up a big chunk of debt paid off. In the months following September I built up a safety fund of £3k. This safety fund is for personal as well as business expenses. It gives me an incredible sense of relief and has removed most of the financial worry from my mind about not earning enough.
Boom time and learnings for 2018
The biggest months for cash received in my blogging world are March, May, June, Sept and Nov. It was the same in 2016/17 and 2017/18, I love a pattern! It’s important in those months to save some of this cash for tighter times. There are some months with a super high spend (or I need to take bigger drawings). May is going to be one of those months. The personal credit card that is used for all spending and is paid off in full each month is £1,800 rather than the normal £900. A combination of annual car insurance, a Germany football trip for eldest, birthday pressies and Easter holidays have made it a very high spending month. A lot of those big one-off costs hit in one month. So that is an extra £1000 I need to add to my drawings I take from the business.
I must remember that July and August are super scary times in the writing/blogging world and very little is commissioned. Money must be kept aside for those two months.
Saving for tax
As well as setting money aside for business and personal emergencies I am also setting money aside for tax. Nothing is certain except death and taxes. Yuk, but a necessary evil. There is money for personal tax as well as corporation tax. I am thinking to set aside more than I think I will pay. That way I will get a nice chunk of money back again when I have aside more than I need to pay my tax bill. Almost like the old corporate bonuses I used to get;-)
Making Big Purchases
There will be times when you need to invest to speculate in your business. Maybe you need to update your laptop/ desktop? Maybe you are looking into office space or you are buying a car for business purposes? You can use some of the cash flow you have set aside to pay for these. Just don’t spend it all, you just might need it in the less-affluent months.
Cash Flow management strategy
At any given point in time I know exactly what my cash flow is. I urge you to do the same for the business you are running. Lack of profit might not kill a business but lack of cash flow will certainly kill it. My cash flow management strategy is always know the total of cash in bank + invoices sent but not yet paid + other work agreed but not yet invoiced. I feel comfortable when I know this total is at least £10k.
You must stay on top of these numbers when running any kind of business to make yourself money and to satisfy HMRC.