Why Self-Employed Business Owners Should Use Cash Flow Management Tactics

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Cash flow refers to the stream of incoming and outgoing cash that represents your day-to-day business activities — but why should you (a self-employed owner) pay extra consideration?

If more money is coming into your business than going out, great, that is a positive thing. When more goes out than is coming in, however, you have cause to be concerned.

From the United Kingdom to the United States, problems with cash flow management are common challenges faced by many operations. Though as a self-employed owner you likely feel more financially and emotionally liable to the business.

Left unmanaged, your steady cash flow can soon dry up, leaving the business (and yourself) in turmoil. In this article, we explore why cash flow management is so important, list the most effective tactics for keeping on top of it, and outline how these tactics differ in UK and U.S. markets to provide value for all interested parties.

Why is cash-flow management important

Effective cash flow management is key to business success. Like blood pumping around the human body, a steady and reliable stream of cash keeps your business ticking along.

Having a strong cash flow means your business can meet expenses, repay investors, and hopefully turn a profit so it can grow. But generating adequate cash flow in isolation likely isn’t enough. Your business also needs to manage its cash situation to ensure the correct funds are available to meet its immediate and long-term needs.

Without generating the cash your business needs, you’ll find it impossible to conduct routine tasks with any consistency:

  • Paying your suppliers
  • Buying raw materials
  • Paying your employees

After all, cash is king in the world of business. Without steady cash flow, you’re liable for the business’s failings, as well as being answerable to investors such as banks and other providers of startup capital. This is a universal truth for all businesses around the world.

Effective cash flow management tactics (UK vs the U.S.)

There are many ways to improve cash flow running through your business. Some are simple fixes like negotiating shorter payment periods to get money through the door quicker; others take more careful consideration but can get you out of trouble when the pressure mounts.

In this section, we focus on the latter, exploring the following three management tactics to improve cash flow when money feels tightest in the U.S. and UK markets.

1. Defer tax payments to free immediate funds

Three things are inevitable in life: birth, death, and taxes. But when times are hard for your business, you can defer the latter and use these savings to pay immediate expenses.

During the pandemic, national governments have been particularly lenient when it comes to small businesses deferring on tax payments. Here is how things work most recently in the United Kingdom and the United States.

In the United Kingdom, you can join the VAT deferral payment scheme. This is a plan open to business owners from 23 February until 21 June 2021. It is a government example that lets you pay deferred VAT in equal installments, interest-free.

In the United States, you were able to defer employment tax deposits. Ending in late December 2020, this extended IRS example allowed you to defer the employer’s portion of social security taxes.

As you can see from these examples, tax deferral schemes change regularly, but it’s worth staying updated with what your government is offering. Tax deferrals, especially during a period of collective hardship, can keep your cash flowing and support the business.

2. Monitor travel expenditure using fuel cards

Fuel is an expensive yet unavoidable business cost.

Whether we’re commuting or delivering, your business — along with many thousands of others — likely relies on vehicles to perform essential roles in your operation. Without having the available cash to keep these vehicles running, your business risks grinding to a halt.

Niche business cards such as fuel cards give you immediate access to cash, allowing you to buy the supplies (fuel) you need to keep the business going, despite any potential financial issues. Here are some options available to UK and U.S. self-employed owners.

In the United Kingdom, iCompario is an example. Here you can compare fuel cards in the UK and across Europe, matching your business needs to your current cash flow circumstances. Fuel cards in the UK allow you to track travel expenditure using reporting data delivered to an account management system. Plus, they simplify the process of reclaiming business expenses by producing a tax-compliant invoice.

In the United States, some popular examples include Fuelman and Sunoco. While many fuel cards available in the UK don’t operate outside of Europe, the United States has its own options, allowing you to manage cash flow more efficiently. One of the main differences is that most American fuel cards offer fuel rebates. Using certain fuel networks you can continually earn rebates (partial refunds or discounts) at gas stations across the country.

All in all, fuel cards are an effective cash flow management tool because they help you understand the ebbs and flows of your operation, allowing your business to stay ahead of money problems and keep everything running smoothly.

3. Use government loan schemes to improve long term cash flow

29% of small businesses fail because they run out of cash.

While there are many reasons that help explain a business’s cash flow problems, one pattern tends to emerge most often: owners don’t want to start off in debt (shown here).

Yes, debt is a scary prospect for anybody, let alone a newly self-employed business owner solely liable for the money they spend. But debt can be productive. After all, companies need to grow if they’re going to survive.

Government loans are an effective (and reasonably trustworthy) way to prop up your organization, providing the injection of cash it needs to prosper and flourish. Here are some potential loan options available to self-employed business owners in the UK and U.S.

Government loan programs in the United Kingdom. In the UK you can apply for a startup loan directly through the government, which — unlike a traditional business loan — works like an unsecured personal loan. Repayments are set at a fixed interest rate of 6% (per year) and can be repaid between 1-5 years.

Government loan programs in the United States. In the U.S. the government supports a number of business loans and other funding options. The federal government guarantees a portion of the loan and repays the lender if you default. This decreases the lenders’ risk and increases your chances of getting accepted.

National and state governments tend to have various loan schemes available to self-employed business owners. Applying for loans through the government reduces the risk of personal impact, but it’s still a loan and you have to pay it back.

Summary: owners should use cash flow management tactics

Self-employed business owners should use cash flow management tactics. Why? Because they…

✅ Stop you running out of essential cash to run your business

✅ Prevent you from overspending and provide key oversight

✅ Allow you to grow your business and set it up for the long term.

Employing effective cash flow management tactics means your business can plan against financial trouble and escape tricky situations when you feel the pinch.

From deferring tax payments and monitoring travel expenditure to future planning with government-backed loans. Some tactics, though a little different, are universally applicable to both the United Kingdom and the United States.

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Kayleigh Alexandra is a content writer for Micro Startups — a site dedicated to spreading the word about startups and small businesses, along with providing inspirational advice for self-employed entrepreneurs. Visit the blog for the latest micro biz news and inspiring entrepreneurial stories. Follow us on Twitter @getmicrostarted.