Managing your finances and stock


Managing your finances and stock


Types of banking for businesses

The day-to-day running of your business will occupy enough of your time without you having to worry about lengthy bank queues or reams of paperwork. Modern banking is flexible, which means you can have instant access to your account via telephone or online to make transactions anytime.

Online banking

Private individuals and business-owners alike are quick to praise the flexibility and availability of Internet banking. Not only do you not need to leave your desk, you can bank at any time of the day or night to suit your needs. This will help you avoid banking fees as you can check your finances anytime and keep potential shortfalls to a minimum.

In addition, you may also be able to download information from your online account directly into your bookkeeping software, saving you even more time. Your bank may offer free compatible software as part of its business start-up accounts.

Telephone banking

Like online banking, telephone banking is a useful alternative for managing your business account if you don’t have time to go into your bank and has been popular with business for many years. You can bank on the move, and most services are available 24 hours a day, all year round. You can also make appointments or arrange overdrafts and loans.


Although you will probably need the services of a good accountant, you will inevitably have to undertake some bookkeeping yourself. The days of manual double-entry ledgers are long gone, thankfully, and you can save a lot of money in accountancy fees by taking on the basic tasks yourself. Fortunately, this can be mostly automated through simple accounting software packages, which require only a small amount of self-training to use.

Most accountancy software allows you to:

  • Control your business finances and cash flow
  • Manage VAT, tax and national insurance, including completion of your VAT return.
  • Produce your annual accounts
  • Manage your profit margins
  • Manage and record your stock levels
  • Keep accurate records of your customers and suppliers
  • Identify late payers and reduce the risk of debt
  • Run your payroll
  • Track your credit card payments and record cash sales
  • Automatically reconcile your books with your online bank accounts.

Accountancy programmes do all the calculations for you using the basic information you enter. Start with a package that is easy to use and work your way up to more advanced bookkeeping items until you have as much control over your finances as you aspire to.

This will help you make financial projections, accurate budgets and forecasts and produce in-depth reports on your business performance, ultimately saving you time and money.

One of the advantages of computerised accounting is the ability to instantly compile records for any period of time. You can present profit and loss accounts to accountants or auditors in an instantly recognisable way.

You may also find it becomes easier to secure funding, as you can produce accurate up-to-date financial reports for lenders at the click of a button. Lenders will also be able to see who owes you money and when it is due, giving them a clear picture of your financial health and potential.

As with any accounting system, there is the possibility of user error, but that also applies to manual bookkeeping, so as long as you are thorough and keep information up-to-date, you shouldn’t have a problem.

Before you invest in accountancy software, speak to your bank, accountant or financial advisor to see if they offer a free package with their services.

Stock and credit management

Managing stock control

Running out of stock can be disaster for your business. Good stock (or inventory) control is the process of managing your stock so you always know what you have available, and how you keep track of it.

Keeping an efficient stock control system will keep your capital free and avoids supply chain hold-ups.

Methods of stock control

You can keep manual records, or use software to control your inventory. Many businesses opt for a combination of both to suit their needs and stock types.

Minimum stock levels

Identify a minimum stock level and have a process in place for re-ordering. The more automated you make this, the less chance you have of running out of stock.

Regular stock reviews

Also known as stock-taking, a review will help you ascertain what your current levels of stock are, so you can order to return stocks to the required levels.

Record stock sales or usage

Every time you sell a piece of stock you should record it, either manually or automatically via a till system. This is also useful practice for internal stocks such as stationery.

Minimum re-order times

A good working relationship with your supplier is essential if you need emergency stock. However, you should always adhere to suppliers’ re-order times if possible, allowing time between placing the order and receiving it.

Rotate stock

First in, first out. Make sure you rotate stock regularly to ensure it does not become dated or deteriorate. Keep date records of each item or batch and move stock on in order.

Managing cash flow

Cash flow is the money that comes into and goes out of your business.

Money coming in is called receipts and can include; cash from sales of goods or services, loans, cash from private means, sale of fixed assets (eg. computers) and cash invested to buy company shares.

Money going out is called payments and can include; cash to suppliers for stock and services, loan repayments, purchase of assets (e.g. vehicles), tax and salaries.

Your goal is to receive more cash than you spend, but if in the short term you find yourself with a cash shortfall, it doesn’t have to be the end of the world. It simply means you will have to secure funding to pay your bills until you yourself are paid by customers. The best way to insure against cash shortfalls is to build up a cash balance to plug any gap. You can also ask your customers to pay sooner or ask for extended credit with your suppliers.

Profit versus cash flow

Profit is not the same as cash – a business can make a profit but not have any short-term cash available.

Profit is when a customer buys your product or service for more than it costs you to provide it. That makes you profitable. However, until they actually pay for it, you don’t have a cash inflow. This means that even a profitable business can run into trouble if the cash dries up.

How do you manage cash flow?

To keep a ready supply of cash to pay your bills and suppliers, you must employ good practices. Devise a good cash flow management strategy to include the following five key elements:

1. Manage the credit you give

Set out reasonable payment terms and do not be afraid to ask for partial or full payment up front. Payment terms can be up front, on delivery, or a number of days from invoice (usually with a maximum of a month).

You may not feel comfortable doing it, but keep on top of late payments and chase! Send reminder invoices promptly and follow up with a phone call if needed.

You have a right to charge interest on late payments and in serious cases can threaten or carry out legal action to recover monies owed. You might want to consult your accountant, solicitor or business advisor on the best way to go about this.

Set up as many methods of accepting payment as possible, for example credit or debit card, Internet payments etc. The more ways a customer has of paying, the easier it is for them.

2. Update your books

If you have regular inflow and outflow of cash, you can’t manage it in your head. Keep accurate up-to-date records of every invoice and transaction. Accountancy software will make this easier, so consider investing in a package if you haven’t done so already.

3. Make a contingency plan

An overdraft or credit card facility can help to bolster any shortfall, but if your plan is to rely on these in the event of a cash flow problem, ensure your bank is willing to provide them, particularly at short notice.

4. Pay your bills

The good relationship you will build up with your supplier through paying bills promptly can be very useful if you need a short extension. The better your history with them, the more likely they are to be lenient when you need it most.

5. Set up adequate funding

Ensure you have a supply of cash for short-term expenditure. A good rule is to use long-term borrowing such as a mortgage or bank loan to fund fixed assets like premises or vehicles, and short-term borrowing like an overdraft to manage supplier debts whilst awaiting payment from customers.

And remember – you aren’t in this alone. Talking to your accountant or business advisor about the best way to manage cash flow can help you to build a better business.

Credit checking your customers

Credit checks can reduce the risk of bad debt, but many businesses extend credit to customers without thinking about it. If you want to avoid the risk of not being paid, it’s worthwhile vetting the customer first to ensure they are creditworthy.

There are many ways to credit check potential customers, but the simplest is to ask them to complete a short form

The form should ask for the following information:

  • Full name of the business and the customer
  • Company information such as type of business and number of employees
  • Amount of credit required
  • At least two trade references
  • Bank details
  • Length of time the business has traded.

If the potential customer is a limited company, they should also supply:

  • Company registration number
  • Name(s) of directors and date of formation.

The more credit required, the greater the risk, so it’s worth setting yourself a limit over which you always check references. You can follow up trade references (ideally with a standard questionnaire to ensure you don’t miss anything) or you can ask the customer for permission to approach their bank for a status enquiry. However, you will probably have to pay a fee to the bank for this service, and it acts only as the bank’s opinion rather than a guarantee so should not be your only source of reference.

Another source is to use a credit reference agency. This only applies to limited companies, as they have to file their accounts with Companies House. The credit reference agency will assess the risk on your behalf (for a fee, of course) and make a recommendation about whether or not you should offer credit.

What to do when customers owe you money

Bad debt and late payments can destroy your business. If your cash flow dries up, you will be unable to pay your own suppliers and that could spell disaster. Getting paid on time is essential, but if all else fails and your customer ceases to communicate with you, you will have to enter the debt recovery cycle.

Your solicitor or debt recovery company will firstly send a ‘letter before action’, which outlines the nature of the debt and the requirement for payment. The letter will state that if payment is not made within a certain number of days, court proceedings will begin. This is often enough to jolt a late payer into action, at minimum cost to yourself.

If the debtor still does not pay, you will need to submit a claim form. You will incur costs, and going to court should always be a last resort, but if you have stated your intention clearly in the letter before action, the debtor will be liable for your costs.

When the debtor receives the claim form from the court, the court proceedings are officially started. The debtor will also be sent a response pack to acknowledge or deny the debt.

If the debtor fails to respond to the claim, then you can obtain a judgment which requires them to make a payment. This also applies if the debtor disputes the claim but you have firm evidence to defend it (for example proof of a returned direct debit). Your solicitor will handle the application for judgment. A hearing will take place and an official will judge whether or not the debtor must pay, in which case the debtor is usually ordered to pay the debt, interest and costs.

If the debtor still does not pay, they will receive a County Court Judgement which remains on record. You may then take action to secure payment, including use of a bailiff to seize goods or a garnishment of salary. You must do this under the guidance of your legal advisor as both actions require a court order.

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

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