Planning your SME cashflows – 6 areas to focus on and get better at

Sure we all know cash is “the” most important asset to look after for your small business. But there’s no education around it that exists formally. Most of us learn to deal with cash from experience and trial and error. As we work across industries and clients of different sizes, there are common areas that most SMEs can focus on to get better at cash management. It will help you adapt a financial model that can withstand sudden changes and pivots.


Here are the six we want to highlight in this weeks’ blog;



Having a firm grip on company expenses


Understanding your own expense patterns and how often you pay something is crucial. Most expenses in an SME is monthly (rent, payroll, regular expenses) and then there are subscriptions. These are a real problem in many SAAS companies. In bigger companies, employees sometimes sign up to tools they need and it continues even when the said employee has left.


As quoted on an article from USA Today – The growing list of monthly fees can be frustrating for consumers, but experts don’t expect companies to back off any time soon. The global subscription billing services market is set to more than double in size between 2020 and 2026, from $5.1 billion to $12.5 billion, according to a report from IBM.


Critically question subscriptions and cancel any that are on an annual renewal.


The other area to look at is your hosting costs, for SAAS this is inevitable and it has to be reliable + safe. Cast your net wide and check for alternatives that may be cheaper.


Planning for VAT



Most businesses pay VAT every quarter. You get a period of 90 days between 2 VAT payments normally, so it’s a consistent payment to be planned for each quarter. If you have a business account with the likes of Monzo Business, it’s best to put away a flat 17-18% of your sales value into a rolling deposit account. Monzo is currently offering 1.6% interest on any “spare” money you put into an instant access savings pot. While this is not exactly spare money, you can still benefit from having a little extra with the peace of mind that the money is accessible when you need it. n


If you’re really small and don’t have enough VAT to put through each quarter, consider shifting to an annual VAT plan.


We did this for a very small client of ours; he was never told this was an option and was incurring £300 penalties each quarter for not filling out a VAT return on time. These penalties are now under new rules but it’s still time and energy that’s required in submitting them each quarter.


Another one which people often overlook. If you’re under £1.3 million in sales you can opt for a “cash-basis” VAT. So you pay VAT on invoices you have been paid already for and on bills you have actually paid. This is useful for companies that have a long credit period for receivables. n


Get an overdraft facility with your primary bank account


When you need a line of credit, your first and easiest source is your current corporate bank account. With your transaction history available to them, it’s usually a faster process of approval and fund release. However, it’s hard to set up an overdraft facility with your bank when your cash balances are low.


You should negotiate an overdraft facility when cash flow is strong within your company. With certain high street banks, you also get a Relationship Manager when you actually have an overdraft with them. Just don’t use it when not needed. Overdrafts can be massively useful for quick access when under financial pressure. They do come with the pitfall of higher interest rates, but it’ll be lower than taking out loans from a complete third party


Learn customer payment patterns


Most SMEs suffer from late payment issues. We have a complete blog on the topic which you can access here.


Learning your customer’s payment patterns will help to cultivate conscious actions that will help your business. I had a client’s customer that would always pay if we called and reminded her. This was a busy entrepreneur juggling many things and she would only remember to pay with multiple reminders. What we discovered was that reminders over phone; even sometimes leaving a voice message does the trick.


If they have a certain payment pattern they follow, learn to adjust your own payments around that when you can.



Building and maintaining a cash reserve


Good companies are cash positive. Great companies are cash reserved. We encourage all clients to maintain a 3-month runway at a minimum. Running a cash basis P&L (on Xero for example) will tell you very quickly what you’re spending month on month in cash. The only items outside of a P&L that you need to think of is payments to Directors which can be significant to small companies, VAT and PAYE payments, any other capital commitments you have. Simply multiply the gross spend amount x 3 to reach a very rough value to hold in reserve. When able, save more. Once you have a lumpsum you’re happy with, try to find options to place that into a long term deposit account.


We’re aware of providers like Flagstone that looks at various options for your money to earn interest. However, research before taking any steps that places money outside an organisations immediate corporate accounts. We don’t have direct experience with Flagstone or similar though extensive research was conducted for a client.


Hopefully this has given you enough to mull over. With the end of the calendar year just round the corner, there is no better time to get a cash forecast in place for the coming year.


Reach out to us if you need a hand or simply want to talk over options. We don’t charge by the hour at Evalua8 unless it’s a very specific project we have committed to. So don’t shy away from booking a slot to chat.



Notes and credits


  1. Flagstone –
  2. Subscription fatigue
  3. All photos in the article are from and allowed for commercial use


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