A company’s liquidity shows how much money there is available to pay, for example, wages, taxes and accounts receivable. How much will be received and how much will be paid out. Insufficient liquid assets is one of the greatest challenges of entrepreneurship, in particular for smaller companies. Unlike fixed assets, liquid assets can be quickly made available for use in the day-to-day operations of the company. Many business owners have got into difficulties for the simple reason that they have not had a sufficiently good overview of their income and expenses. In the following section, there are some smart tips to keep a check on and improve the cash flow of your company.
Most companies that have been operating for some time have a rather good overview of how their income is distributed over the year. Make a reasonable calculation on a month-by-month basis and estimate how much money you should receive. Follow this up and adjust it as soon as you have more information, make sure that the calculation is as accurate as possible.
Do the same for your expenses. Check to see which costs arise and supplement them with what you know about the coming year. Don’t forget to include the company’s tax payments, for example, value-added tax and employer’s social security contribution.
Compare income and costs on a month-by-month basis and see whether you have sufficient liquidity for the company’s current expenses. There are often expenses that are not essential for operations. Make a list of the expenses that you can quickly get rid of without affecting your ability to earn money. Then make an additional list of the expenses that you could remove it you really needed to.
If you carry out step 1 and 2, you will have the basis for a good liquidity plan. You now have an overview of the coming year and can see whether there are periods where liquidity is insufficient, which will also enable you to plan to avoid it. There may perhaps be other ways to increase you cash flow, both in the short- and the long-term. Even small steps can be important for the company in the long run.
Make sure that you optimise your invoicing process. Don’t wait to invoice but send the invoice to the customer as soon as you can. Check with your customers if they can accept a shorter period of credit for the invoice. It may be quite OK for them if they have 14 days to pay the invoice instead of the customary 30. Large jobs can often tie up a lot of money that is needed for, for example, wages and accounts receivable. Talk with your customer and say that you need to invoice in instalments as the task progresses, in particular for extensive jobs that weigh down the cash flow. Make sure too that you send a payment reminder if the customer forgets to pay in time. If the invoice has fallen due for payment and the customer has still not paid, despite a reminder, don’t hesitate to contact a payment collection agency, which can help your company with suitable measures. It might feel unpleasant but if you company doesn’t get paid, you might end up at the Swedish Enforcement Authority or get a record of non-payment next time.
When you are finished with a job, the customer often has 30 days to pay and sometimes more. During this period, you are lending money without interest, which you could be making use of in your company instead. By selling the invoice to a financial player, you hand over responsibility for credit and supervising the invoice until it is paid to the party that purchases the invoice. You will receive your money directly and won’t have to keep an eye on what is happening as far as payment is concerned. It will cost you a bit to sell the invoice but, on the other hand, you won’t have to wait for your money – and you will save administrative time that you can use for other purposes. Läs mer om fakturaköp här.
It may put pressure on you to have to advance large amounts for, for example, purchase of materials and leasing machinery. Make sure that you negotiate with your suppliers – the better conditions you can obtain, the more it will have a positive effect on your cash flow. You might be able to get one or two additional months to pay, or perhaps even wait until your customer has paid you. Don’t be afraid to negotiate with you suppliers, it can pay off.
It can sometimes be beneficial to know exactly what expenses the company will have every month. By leasing equipment, machinery or even personnel, you will avoid high start-up costs and have a more even and predictable distribution of expenses. It often costs a bit more but at the same time creates more flexibility and frees up resources in the company. Just be careful with leasing contracts so that your costs don’t accumulate to large amounts or that you are not able to terminate the agreement when it suits you.
The bank is often closest at hand when a company needs to strengthen its liquidity. A common solution is to have an overdraft facility which can be used when needed. The overdraft facility is limited to a particular amount that the bank considers reasonable for the company, and corresponds to the bank’s willingness to bear risk. The company can make use of the facility when required and use the money when needed in the company. It is both practical and flexible to have an overdraft facility, but it shouldn’t be used to borrow money over a long period. This may be expensive as the interest rate is often high. The bank can also lend money in the short- and long-term. However, this is often a rather extensive and time-consuming process as the bank makes high demands. They wish to make a thorough analysis of the company’s finances and business and make high demands on the company’s creditworthiness. It is often simpler to take a corporate loan from other financial players which specialise in corporate loans. They often have short processing times and a fixed price for short-term loans, and you may be able to have the money in your account within 24 hours. Choose your lender carefully read the conditions carefully so that you have a good idea of the applicable conditions. Read more about business loans here.
All companies pay in preliminary tax regularly, the level being determined by how the company has gone previously. It is only after the closing of the books for the financial year that the Tax Agency knows exactly how much tax you should pay for the year. If you have paid too little preliminary tax, the company will have to pay the rest in retrospect, if you have paid too much, the money will be reimbursed to your company. There is no reason to lend money to the state which the company will any case receive back. It is possible to apply to reduce, or to raise, preliminary tax so that it accords as well as possible with the forecasts you have for your business.
If the company is in an acute liquidity crisis, it may be an alternative to sell assets which are not necessary for the company’s operation.