Cash Flow Ready from Day One: Tips for Sole Traders

Staying on top of your cash flow is crucial for any sole trader or small business owner. Even if your business is running a profit, there may be times throughout the year when your cash levels are insufficient to pay your immediate expenses. To solve this problem, you may need to acquire high-interest loans. If you can’t get the money then it is possible that you will lose key suppliers or get kicked out of your premises.

small business cash flow for sole traders

A common feature of small business cash flow is that you do not have a regular income. Some months will record higher income than others, especially if you offer seasonal products and services. This is why cash flow management is important.

By creating cash flow statements at regular intervals, you will be able to track all the money flowing in an out of your small business. As your business progresses, you can compare your cash flow over time to ensure you are developing your business correctly and are maximising all the opportunities that come your way. You can also discover whether there is any cash hiding in your business and how to access it. Combined with an income statement and balance sheet, your cash flow statement will help you determine the financial health of your business. Smart business owners will start looking forward by creating cash flow budgets that project their incoming and outgoing cash to avoid any dangerous gaps.

Sole trader cash flow management software

Getting a small business or sole trader focused cash flow management system makes keeping on top of your business cash flow easy.

It can be difficult to create cash flow statements that are accurate, easy to read and suitable to be sent off to your accountant if you have little experience in accounting practices. It can be time consuming and frustrating to do by yourself.

Plus, there is the possibility that you mislabel or miscount some of your income and expenses, and create an inaccurate picture of your business finances. Relying on this data can create a series of problems that snowball into one big cash flow disaster.

With dedicated small business accounting software or cloud-based applications, you simply input your income and expenses into the columns provided, and the program will label and calculate everything that you need to be able to analyse your business cash flow.

Sole trader’s benefit from a business bank account

For sole traders, it can be very easy to merge your business and personal finances if you don’t have an independent business account.

However, it is much safer and more efficient to separate the two accounts. Firstly, while it is perfectly normal to need to dig into your savings in the first few years of a new business to get it up and running, if you have merged your personal and business finances, you will find it harder to see whether the business is creating enough cash flow to sustain itself. By separating them, you can see how often you need to dip into your savings to pay for business expenses. You can then look to rearrange your income or expenses so that your business cash flow is able to pay for all the expenses.

Secondly, having a separate business bank account makes it easier at tax time to accurately calculate the deductions you are entitled to. It also makes it easier to keep on top of your records and makes sure they are complete and accurate.

Update cash flow records regularly

Another strategy for keeping your records complete and accurate is by updating them regularly. Especially if you have a lot of receipts lying around, it can become easy to forget what each was for and whether it was a personal or business expense. If possible, you should input your income and expenses at least every week. By creating a set time to do your accounts every week, you will save yourself a lot of time and frustration when you do want to generate a cash flow statement. You will also be able to monitor your business cash flow at any time, not just when tax time comes around.

By implementing these ideas from day one, you are setting your sole trader business up for success. Whilst managing your finances can be daunting, especially in the earlier years of your business, it is essential to being able to grow your business into a successful and profitable enterprise.

Try Cashflow Manager today to keep your small business cash flow under control.