Mastering cash flow: Essential tips for first-time entrepreneurs

For many first-time entrepreneurs, managing cash flow can feel daunting. However, getting a handle on this early can make the difference between thriving and surviving.

Here are four simple actions to take to ensure your business stays financially healthy:

1. Create a realistic cash flow forecast

A cash flow forecast helps you predict when money will come in and go out of your business. It's essential to identify periods when cash might be tight and plan accordingly.

Start by:

Listing all your fixed and variable expenses – When do you expect the money to leave your account? Is this a guess, guestimate, estimate or a bill?

Estimating your income based on realistic sales projections – Split this by marketing channel, or product type if possible. Include pessimistic estimate of sales and pessimistic estimate of costs.

Resource: H&F's Macbeth Centre offers a Book-Keeping and Accounts course that might be useful for you.

2. Separate personal and business finances

One common mistake new entrepreneurs make is mixing personal and business finances. Opening a dedicated business bank account can simplify tracking expenses and ensure you have a clear view of your cash flow.

Local tip: The new banks Starling, Revolut and Metro offer more flexible business accounts than the traditional banks.

3. Understand payment terms and chase invoices

Ensure your payment terms are clear and agreed upon upfront with customers and suppliers. Include them on your invoices if you issue them. Don't be afraid to follow up on overdue invoices promptly – delayed payments can disrupt your cash flow. For new clients send a friendly reminder before payment is due, asking "Do you have all the information you need to proceed with payment?"

Resource: The Federation of Small Businesses (FSB) offers guidance on improving invoice practices and templates to streamline payment collection. Check out their resources.

4. Build a cash reserve

Unpredictable expenses are part of running a business. Setting aside a portion of your profits as a cash reserve can provide a safety net for unforeseen costs or periods of slow sales. Build up three months' worth of cash in the bank. This may take a few years but is worth it.

Local support: The local Chamber of Commerce runs networking events where local business owners share thoughts on managing finances and building reserves. Find their events.

By taking these steps, you can gain confidence in managing your business' finances and avoid many common pitfalls.

And remember, ask for help before you need financial assistance and your business processes will fly.

If you're looking for more personalised advice, I'm offering free speed advisory sessions to help local startups get started on the right foot.

To receive updates on available business advice sessions with Mark Elliott and other business support services - free for H&F residents and businesses - please complete the online registration form.