Bank Balance Causing You Problems? This is How to Sort It

Blog Author:

Graeme

Post Date:

23 September 2024

Running a construction or hospitality business can be a complete and utter nightmare. You’ve got projects piling up, staff to manage, broken equipment and customers who seem to think paying on time is optional. But the biggest headache of all? Cash flow.

I’ve seen it first-hand. I’ve witnessed the stress of a dwindling bank balance and the fear of not being able to make payroll. Trust me, it’s not a fun place to be. But don’t worry, I’m here to help.

I’ve been in the construction industry for decades, and I’ve seen my fair share of ups and downs in my time. I’ve learned a thing or two about managing finances along the way, so I’m going to share my tips with you.

Separate Bank Accounts

First things first, set up separate bank accounts for your business. This will help you keep track of your finances and avoid mixing personal and business expenses. After all, you don’t want your accountant or bookkeeper to see exactly what nice presents you got for your other half. Let’s just say we’ve seen some ‘interesting’ personal expenditure when sorting out year end accounts.

I recommend using Monzo banking, as they offer this handy feature called “Pots”. You can set aside money for specific things, like tax, rent, or, in my case a pot to fund my golf clubs (which by the way, if you’re not into golf, cost an arm and a leg!). I was recommended to Monzo and wondered what all the fuss was about, but I’ve learned it’s a pretty great app for keeping your finances organised. And, even if digital banking and apps isn’t your thing, it’s pretty easy to use.

Getting Paid Promptly

Getting customers to pay on time is like trying to score a hat-trick against Man City – tough and often impossible, but there are a few things you can do to improve your chances (that’s with getting paid on time, not scoring against Man City – unless you’re Alan Shearer).

Send clear and concise invoices: Make sure the details are correct and easy to understand.
No surprises: Your billing schedule or the details on the invoice should match what the customer is expecting.
Set payment terms: Clearly state when you expect payment.
Put your bank details on the invoice: You’ll be surprised how many invoices we receive where we can’t work out how or where to pay. If your invoice will be paid by direct debit, then state this on the invoice. If you want them to press the ‘pay now’ button, then put this on the invoice. You get the idea!
Follow up: If a payment is late, don’t be afraid to chase it up. A friendly reminder via email or phone can often do the trick.

Cash Flow Forecasting

A cash flow forecast is a prediction of your future income and expenses. It’s a vital tool for any business, but it’s especially important in the unpredictable world of construction and the seasonally impacted hospitality sector. Projects are great as they are a large lumpy sum of money. But the problem is that projects often come with high upfront costs, i.e. to hire the equipment needed or buy the materials to get started.

Projects can get delayed, costs can shoot up out of nowhere, and we’ve already had a rant in this article, about how slow customers can be when it comes to paying. With a cash flow forecast, you can see these potential problems coming and take steps to avoid them. No more unwelcome surprises.

Minimising Bad Debts

Bad debts can be another major drain on your cash flow. These are, more often than not, due to the long payment terms involved in construction. Of course, it is possible to have a bad debt with a hospitality business but in my opinion this industry is far better at taking payment either at the point of delivery or before an event.

Here are a few tips for minimising your bad debts:

Conduct credit checks: Before doing business with new customers, check their creditworthiness. Don’t just take their word for it. Companies House is a great place to snoop or pay for a credit check.
Require deposits: Ask for a deposit upfront to reduce your risk. Particularly at the start of a project or before you need to buy materials or ingredients.
Set clear payment terms: Make sure your terms are fair and reasonable, but don’t leave any room for doubt. I.e. these payment terms should be discussed at the point the contract is signed.

Payment Plans and Instalments

If a customer is struggling to pay, consider offering them a payment plan. This can help you avoid bad debt while still getting paid and it’s more manageable for the customer too, win-win. This option applies more for the construction industry rather than hospitality. Funnily enough we have a few payment plans currently in place for our clients who hit a tough spot trading wise.

Keeping Your Books Up-to-Date

Keep your books in order. By doing this you can see who owes you money, when payments are due, and if you’re heading for some squeaky-bum time when it comes to your cash or money in your bank account.

I’m a big fan of QuickBooks. It means you can run your business from anywhere in the world as long as you have an internet connection. The QuickBooks software tools let you track your cash flow and keep your business running smoothly. But, the best part is saving time on sending invoices, tracking expenses, and preparing your VAT returns. All of the long, boring admin jobs that often get ‘forgotten’ about.

Splitting Finances by Project

Are you working on multiple projects? Do you know which one of these projects are loss making or the ones that are truly making you money? In my experience many construction companies and hospitality businesses don’t know. Everything gets lumped together on one or two lines of the P&L.

In order for you to grow and put more money into your bank account you want to know which ones are bringing in the profits and which ones are costing you money. If you are a hospitality business you can do this by splitting the revenue lines on your P&L between items such as takeaway, table service or create reports using software to analyse which of your tempting desserts are working for your customers’ palates and your bank balance.

One of the reasons I like Quickbooks is it makes it easy to split up your expenditure and income on a project by project basis. This means someone like you or I can see very quickly which projects are underperforming and how to quote better next time.

To summarise

Firstly, don’t put your head in the sands when it comes to cashflow. The sooner you have a problem emerging the easier it is to deal with it. We are here to help you whether you are worried about cash flow or whether you know you have a cash flow crisis.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

Other News

7 October 2024

What to do if the tax man starts banging on your door (and gets pretty aggressive)?

Taxman knocking? And not knocking quietly? Here’s how to handle an HMRC investigation:

Ever had that sinking feeling when you get that brown envelope with ‘HMRC’ written on it drop through your letterbox?

I experienced a similar feeling recently when I went to the doctor and was told I needed to change my diet. Seriously? The weekly Chinese was under threat! Gutted.

You know you should open the envelope. And you know it’s not an unexpected tax rebate. Of course, it could just be that an employee’s personal tax code has changed. But still that feeling of dread is real.

So, what do you do if the taxman is on your case and being a real pain in the backside? I’m no stranger to this topic, although I’ve learned over the years that everybody’s situation is different. Some are more challenging than others. But the one thing that doesn’t change is my advice on how to deal with it. So let’s get into it.

Understand Why They’re Here

Before you start responding to the taxman’s questions, try to work out exactly why they’re investigating you. Have you missed a deadline? Made a mistake on your tax return? Or is it something more serious? Once you know, you can start to prepare your response. Being honest with me is important when I ask you these questions. Trying to cover up stuff here with me or HMRC can just bring a whole heap of the brown stuff down on you.

Or maybe you already know the reason, and it’s just the inevitable catching up with you. In that case, it’s time to deal with it before it gets any worse. You don’t want to be caught standing in court with all the truth coming out? I’ve seen it happen, and it ain’t pretty. It’s pretty stressful if your case goes to court.

Regardless of whether you know the reason or not, here’s what I would suggest you do next:

Be Cooperative

It’s important to cooperate with the tax inspector. Answer their questions honestly and provide any documentation they request. I know it’s hard not to get your back up when you’re feeling accused of something, but try not to be too defensive. Remember, the more you cooperate, the easier the process will be for everyone involved. As your accountant, If I can show that you have been cooperative, this could reduce any penalties that the tax man wants to make you pay.

Seek Professional Help

If you’re feeling overwhelmed, consider seeking professional help. Get in touch with someone who knows their stuff. (Hint: I’m right here. I’m just a phone call away, and I wouldn’t judge.) An accountant can provide invaluable guidance and support throughout the investigation, even if it’s emotional support that’s needed. They can help you understand your rights and responsibilities, and they can negotiate with the taxman on your behalf.

A decent accountant should give you peace of mind, ensuring you’re compliant with tax laws and regulations. It’s important to choose wisely if you’re going down this route. Always do your research before you make a decision.

Proactive Measures to Avoid Investigations

The best way to avoid an investigation is to be proactive about your tax compliance. Here are some of my suggestions:

Keep accurate records: This is the most important thing. Make sure you keep detailed records of all your financial transactions. The first thing I will want to do to help you – regardless of any HMRC investigation – is to get your books clean and up-to-date.
File your tax returns on time: Don’t miss any deadlines. That’s a fine you do not want or need.
Pay your taxes on time: Avoid late payments, as they can trigger an investigation and heavy interest charges.
Stay up-to-date with tax law changes: Tax laws can be complex and change frequently. Make sure you’re aware of any changes that may affect your business. This is where I can help you. As your accountant, I will ensure that you are compliant with all the relevant tax laws, such as CIS and the reverse VAT scheme for the construction sector.

Remember, the taxman is just doing his job. If you’ve done everything by the book, you should have nothing to worry about. But if you’re feeling a bit anxious, I’m happy to offer you some advice. Sometimes crap does happen to good people.

Additional Tips:

Don’t panic. It’s easy to get stressed when you’re being investigated, but staying calm is important. Take a minute to sit down with a cuppa and get rid of any anxiousness you’re feeling. You need a calm head for this stuff.
Be prepared. Have all your documentation ready before the investigation begins. You don’t want to be flapping around trying to find letters or emails; it won’t look good.
Don’t make any rash decisions. Just take your time; it’s important to consider all the options that are available to you. Take notes to look back on if necessary.
Seek advice from a professional. A tax advisor or investigations specialist like myself can help you understand your rights and responsibilities and go about them the right way.

By following these tips, you can increase your chances of firstly avoiding a tax investigation in the first place and then getting a successful outcome in a tax investigation.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

9 September 2024

The bank says ‘no’: Now what?

Growing your business is great, but let’s be honest, once you start adding people, office and expensive plant it costs an absolute fortune. We’d all love to be able to just go to the bank and walk back out with a wad of cash. But, unfortunately it’s not as easy as that.

Securing the necessary funds to drive your business growth requires careful planning and strategic financial management. It’s like aiming for a hole-in-one at golf. You need to map out your course, consider the obstacles, and make strategic decisions to achieve a successful outcome. It’s not just about luck or who you know at the bank or finance business.

Understanding the Challenge

Banks, while essential for many businesses, aren’t always the most flexible lenders. They want to see your life story and, what can feel like, your dog’s birth certificate before they give you a penny. But there are ways around it, and failing that, you do have other options.

It’s all about getting your business in shape to impress even the most sceptical lender. Banks are pretty sceptical these days! If you want to increase your chances of securing the funding to help grow your business, you need to be able to present a strong financial profile.

Now, without giving my age away too much, I have to admit I have decades of accounting experience under my belt. So it’s fair to say, I know a thing or two about what lenders look for. I’m going to use that to take you through the necessary steps to become a more appealing applicant to a lender.

Boosting Your Bank Balance

Before we get into the nuts and bolts of financial planning, let’s start with the basics. You need a bit of cash in the bank to look good to lenders.

Liquidate Assets: Take a look around your site. That old digger or spare bit of land could be worth something. It might not be the most exciting option, but it can certainly help.
Refinance Plant and Equipment: Refinancing can free up some cash. So, if you’ve got some shiny new equipment sitting around not being used, refinancing is an option. It’s like getting a cash advance on your stuff, but don’t forget, you’ll still owe the money.
Remortgage Property: If you own any properties, remortgaging can also provide a lump sum. But be careful with this one, the last thing you want to do is lose your home if the business goes through a lean patch.

Preparing Your Business for Lenders

Now, it’s time to get your business looking good for the bank. It’s all about showing them that you know your stuff and you’ve got a solid plan.

Up-to-Date Books: If your books are messy, it’s time to get them organised. Your books are like a report card for your business. They need to be top-notch. Lenders want to see straight A’s, not a load of red ink.
Financial Analysis: Break down your numbers. Not only do you need to prove you know your stuff, you’ve got to be able to back it up with evidence.
Cash Flow Projections: Are you familiar with cash flow forecasting? A solid forecast is essential because you need to show that you can handle the new costs without going under.
Profit and Revenue Projections: Show your vision for your firm’s future to lenders, they love to see a plan. Be prepared to demonstrate how you intend to make more money down the line.
Business Plan: A well-structured business plan outlines your goals, strategies, and financial projections. It’s your chance to convince lenders that you’re a safe bet.

Guarantors: A Safety Net

Sometimes, lenders might ask for a guarantor. If this isn’t you personally, this is basically someone who promises to pay back the loan if you can’t. It’s a big ask, so choose wisely.

Make sure to keep in mind that guarantors aren’t philanthropists – they have got to protect their own interests. This means they will probably ask for some form of security, such as a personal guarantee or even a share in your business. It’s important to understand what’s at stake and be aware of all the potential implications before involving a guarantor in your finances.

Beyond the Bank: Alternative Funding Options

There are other options other than banks that you could consider when it comes to financing your growth.

Government Grants: Free money sounds alright, doesn’t it? Okay, maybe a bit too good to be true, but there might be something out there. Do some research and see what you find. It might be your lucky day!
Alternative lenders such as Funding Circle: There are more people who will finance a construction project than just the bank. We have a great little black book of contacts who can help you raise money without needing to go cap in hand to the bank.
Crowdfunding: Get the crowd to raise money and fund your business. It’s sort of like a big pub collection, but usually done online instead. This is not a normal option for construction or property businesses to use to raise finance!
Venture Capital: Got a high-growth business? These guys might be interested in backing you. But just a heads up, the thing with private equity financing is that they will likely want some form of a return. That means they will want to own a significant slice of your business.

Time to Pay: An alternative source of finance

If you have been diligently putting money aside to pay your corporation or VAT bill, this is money that you can use in your business. You may be able to negotiate a payment plan with HMRC and reroute your cash set aside for tax bills to fund your next project. Don’t get me wrong, it’s not ideal and HMRC can be pretty fickle about whether they will do a payment plan. There’s usually interest involved, so by all means it’s not a free ride. But it could free up the finance you need.

Just make sure to weigh up your options carefully. Although a payment plan is better than digging yourself into a deeper hole, it all depends on your circumstances at the end of the day.

Remember: Every business is different. What works for one might not work for another. Sorry to be the bearer of bad news but copying what somebody else is doing just isn’t going to cut the mustard. That’s why it’s important to get advice tailored specifically to your business.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb

26 August 2024

Raising finance for construction companies

Running a construction company is not easy. Managing projects, employees and subbies can be a nightmare, not to mention chasing payments. One of the biggest challenges I see is getting hold of the cash needed to keep things moving.

Which brings me on to finance. Now, I know what you’re thinking, “boring”. But stay with me, this could be a game-changer. And I am not exaggerating on this.

One of the biggest hurdles is getting paid on time. You’ve probably experienced those long, painful waits for invoices to be settled. This can put a serious strain on cash flow.

Overcoming Challenges

I’ve known construction firm owners to struggle accessing finance. The problem is these traditional lenders, like banks, don’t understand the industry’s specific needs. This is where specialist lenders and finance brokers can be invaluable. However, when raising finance you need to make sure that your books and accounts are in order. I know, boring, but this is the first thing a specialist lender will want to see before they open a line of credit for you.

Invoice Finance

Invoice finance is where you get paid upfront for work you’ve already done, even if the client hasn’t paid you yet. It’s like having a safety net when those payments are overdue.

Equipment Finance

There are more options than just invoice finance. Equipment finance can be a lifesaver if you need to upgrade your machinery without breaking the bank. And if you’re looking for a bigger lump sum to fund a new project, there are business loans and development finance options out there.

Government Grants

Of course, there’s always the hope of government grants. But let’s be honest, they can be as rare as me going a week without a Chinese.

Construction Supply Chain Finance

Right, let’s talk about this supply chain finance thing. Supply Chain Finance is offered by specialist finance companies. These are businesses that do a lot of financing to construction companies. They pay your invoices to your suppliers and contractors. This means that you can get started on a project before the client pays your first few bills. Sounds alright, doesn’t it?

However, the specialist finance companies will want their pound of flesh. This means you will need to pay them interest on whatever you borrow from them.

Your suppliers get paid faster, and you get a bit more time to pay them back. It’s a win-win, as long as you realise this is not free money and you need to manage it right.

Key Considerations

When considering finance options, it’s essential to weigh up the pros and cons of each. Factors to consider include:

Cost: Interest rates, fees, and charges
Repayment terms: How long do you have to repay the loan?
Security: Do you need to provide collateral? Such as your house!
Impact on cash flow: How will the finance affect your day-to-day operations?

It’s also worth thinking about the long-term implications of taking on debt. Make sure you have a clear plan for how you’re going to repay the loan.

Getting Professional Advice

Right, let’s touch on getting expert advice. Sometimes you just need a second pair of eyes to sort through the financial mess.

Decent accountants know the ropes. They’ve seen it all before. They can help you figure out what you need, where to get it, and how to pay it back without breaking the bank (and save you the risk of being ripped off).

So, if you’re feeling overwhelmed by it all, don’t be afraid to ask for help. It could be the best decision you make.

A Few Extras to Think About

Cash flow forecasting: Keep a close eye on your money coming in and going out.
Risk assessment: Weigh up the pros and cons of different funding options.
Debt-to-equity ratio: Don’t pile on the debt.
Government support: Check out what grants or loans are available.

By thinking about these things, you can make better decisions about your business.

Interested to find out more?

Call us on 01617 985789

Or book a meeting at https://calendly.com/d/ckfd-tzk-zbb