Sole traders, freelancers, and small businesses will often go through rough times. Seasons can affect certain businesses and their revenue, products go in and out of fashion, and recessions occur.
Last year and still ongoing is one of the most difficult periods that businesses have seen in the UK, and indeed, the world. The pandemic has meant that many businesses have had to operate at limited capacity or had times when they weren’t even allowed to open.
This has obviously affected revenues and it is reported that more than 900,000 businesses in the UK could fail in the second quarter of 2021. The knock-on effect of that will mean higher unemployment, families struggling, and less money being spent in other areas which will mean more businesses struggling.
If you have a small business or are a sole proprietor or even a freelancer, you will want to know how you can keep running during these times. Here are some simple and some possibly radical steps you can take to keep your head above water.
What do you need to keep operating?
The simple answer to this is cash. To keep operating you must have a constant flow of cash running through your business. If this isn’t possible then you may have to look for other sources of finance but avoiding loans and debt is vital.
Taking on loans while the situation remains so difficult will only make it harder for your business to keep operating, and there are many other avenues to explore first.
Making sure you have good cash flow means that you will be able to pay suppliers and staff on time, and therefore maintain good relations with both. This is vital for maintaining your reputation with both external contacts and your workforce.
But, how to keep the cash flowing in?
Consider leasing
If you are having problems meeting sales levels of previous times then it may be that your market just cannot afford to buy anymore. Depending on what it is you manufacture, you may be able to move into leasing as well as selling.
Many experts believe that leasing can transform your business and increase cash flow. For example, if you were selling power tools from a retail unit, you could start offering terms for leases and rent instead. You would retain ownership but receive smaller but possibly more regular payments than if you were only selling.
Having a regular flow of cash coming into the business will keep your operations running smoothly and you will have fewer worries.
Make sure your documents are in order
One simple reason that your cash flow isn’t as good as it should be is that customers are not paying on time, and one reason for that is you aren’t communicating properly.
When an order goes out there should be a delivery note and invoice attached. Problems can arise when documents go missing or have incorrect details on them. Perhaps the payment due date is wrong, or the delivery note has the wrong quantity on it, or the total due on the invoice is wrong.
Having errors on your documents can lead to delays while they are corrected and thus lead to late payments or even disputes. Similarly, if you don’t follow up on late payments then you may not receive your cash.
Sending an overdue invoice letter as soon as the payment due date is passed is essential for controlling debt. Emails are the preferred way to communicate as they are basically free, they are instant, they are a provable delivery method, and they can contain links.
Putting in a link in your invoice to your payment platform can lead to swift payments from your debtor. This keeps the cash flowing and your business operating.
Selling your property and renting back
This is one of the more extreme methods of raising capital but it has been used by many companies looking for a cash injection.
If you own your office building, retail unit, or production plant then you could sell to an investment company on an agreement that you could rent it back from them for a set period and at a set cost. Freelancers can also use this method if they own their homes.
This is one way to raise a large amount of money in a relatively short period while still retaining your existing premises. The downside is that you won’t receive the full market value and you will have to find the money for rent until you can purchase again.
Using small claims courts to pursue debts
One of the most frustrating things for an individual freelancer or small business is not getting paid. Often it is a temporary problem due to your debtor’s cash flow or it is an oversight. Other times though, it is because the debtor has no intention of paying.
When this happens you will have to find a way to recover the debt without incurring too much expense yourself. Unpaid debts restrict your cash flow so you will want to resolve the issue as quickly as possible and with minimum fuss.
You can make a small claim online easily in the UK for up to £10,000 if you are either an individual or a sole proprietor. Businesses can only claim up to £5,000, but if you fall into these categories then this is a simple method of claiming a debt.
If the debtor doesn’t reply to your claim or contest it, you won’t even have to go to court.
Use debt management software
Using technology can help you to keep track of who owes you what and this will lead to a healthy cash flow. When trying to keep your business running in these hard times, controlling debt is vital.
Smart debt management solutions from companies such as Payt Software, among others, can automate several processes and integrate with your systems. By automatically sending out reminders and invoices, your debtors are more likely to pay quicker.
Make life easier for your customers
It won’t just be your business feeling the pinch, your customers will too. If you can find ways to make things easier for your customers then it is likely they will pay quicker and keep everything running smoothly.
Here are some options you might want to use:
- Offer payment plans for customers so that they can spread payments over some time.
- Let them have a discount for paying early.
- Give more varied payment options.
- Let your customers pay online.
- Offer some form of loyalty discount or promotion to retain customers.
Anything that you can do to keep cash flowing in and your business making a profit should be utilised.
Summary
You may understand that there are many ways to manage your debt on a personal level but when it comes to business things are a little different. Debt management software can help tremendously when it comes to controlling credit lines and communicating with debtors.
Chasing debts can be costly and time-consuming so using technology is one way that you can make debt management much smoother. If things do turn bad, then consider small claims as an alternative to expensive lawyers.
Lastly, you might find customers pay quicker if you just make things easier for them by allowing payment plans, and more ways to pay.
