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Five ways that poor cash flow can damage your hospitality business

January 14, 2019

Your cash flow is an important part of the financial management of your business. With enough financial backing, a business can survive making losses for a short period of time, but should your cash flow be improperly managed, then you’ll soon experience challenges that could make your business’ operations unsustainable.

Here are five ways that poor cash flow can damage your business.

  1. You can’t pay suppliers

If you don’t have the cash coming into your business, then you might not be able to pay your suppliers. This can harm your relationship with suppliers which makes you less of a priority, meaning, therefore, that the service you receive is poorer.

In addition, supplies coming to you could be late, and this can lengthen your business’ ability to function. Imagine trying to run a lunch without the necessary ingredients to make your best dish, or running a fashion store with no clothes in it! This can damage your reputation with customers and threaten your revenue as customers abandon you for more reliable sellers.

  1. Reduce credit score

Many businesses rely on their good credit score. However, if you can’t make repayments or you make them late, your credit rating will be lower and this can negatively impact your ability to borrow money for business growth.

When you start missing payments, lenders may raise rates on your borrowing. If you continue to miss payments, you could face insolvency and the end of your business. You might also have to raise prices and, in some price-sensitive sectors, such as retail and hospitality, this can turn customers away.

  1. Can’t invest in inventory

If you can’t buy new inventory, then your business can literally come to a standstill. This can be particularly challenging if you have a new product line being launched but can’t buy enough stock. Customers are more likely to go to stores that have the best stock levels.

Some inventory loss might also make it challenging to manage your cash flow. Imagine trying to host events if you don’t have the right tables, chairs, plates, etc. because in the last job they were damaged.

  1. Can’t pay staff

Not being able to pay staff is a headache no business owner wants, but it’s a real danger. The biggest threat here is that key members of your staff, the very ones that are able to save your organisation, will look for new work and leave. With many retail jobs available for experienced employees, this is a real concern.

Being unable to pay staff can also pose a major challenge to your reputation. If rumours of staff being unpaid circulate, then you won’t be able to attract new staff, creditors will become anxious, and customers will not be supportive.

  1. Lose customers

When you have bad cash flow, you’re suffering from a major problem. When debts, suppliers and employees aren’t being paid, you’re going to get negative press. This can directly lead to your business losing customers as they avoid you, scared that you won’t be able to fulfil bookings or that they won’t be able to return items should you close down.

Longevity is important to customers. If they think you won’t be there in a few months time, they’ll leave.

The available solutions

Luckily there are solutions to your poor cash flow problems that can help your business not only survive but also thrive in the aftermath. Here are some options for your business.

  1. Check customer details

In retail this isn’t much of a problem; customers pay when they select their purchases. However, for some hotels and event companies, one of the biggest challenges you’ll face with cash flow is your customers not paying on time. Imagine a customer staying at your hotel and then leaving the next morning before paying.

Therefore, the first thing you should do with any new customers is to check their details. Ensure they have given correct information before you allow them to use your services. You can also request that they pay a deposit before you start offering them your services.

  1. Define payment terms up front

Develop a payment schedule with your suppliers that ensures you don’t get surprised by an invoice. Ensure that your suppliers know and commit to their obligations as well. Ensure you write in the document what the potential ramifications are should they not meet the terms of the contract.

Payment terms can be generalised for all your suppliers but it is likely they will all have different requirements.

  1. Outsource your financial management

Sometimes bad cash flow is caused by your inability to manage your finances as well as you should. You’re probably not an expert in business financial management and why should you be? However, there are others who are more experienced and they can take over the day-to-day running of your finances.

When you outsource financial aspects of your business you free up your time to concentrate on doing what you do best: serving your customers. Therefore, you are more productive and this can help raise revenue, increase profits and improve your cash flow immediately.

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Since starting my business I have used a well established Accountants, and switching to Virgate Accounts is the best thing I’ve ever done. Sarah is very informative and does everything possible to help me grow my business. She is very good at what she does and a pleasure to deal with!

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Sarah is a competent, knowledgeable and skilled finance professional. She offered sound advice and guidance and provided many solutions for us when delivering monthly P&L accounts or preparing yearly budgets.

Sarah is helpful, polite, approachable and frequently went beyond her remit to assist our business, always being on hand and frequently travelling 8 hour return journeys for short meetings! Would strongly recommend Sarah as a capable finance consultant for any size business and hope to work with her again in the future.

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Sarah has been doing our accounts for almost a year now and she is excellent, always on the end of the phone or email. She has taken the stress completely away from us, we can’t thank her enough.

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Steph Thomas Owner at Creating Bookings

She has always provided an excellent level of information

We have worked with Sarah both indirectly and directly over the last 6 years. She has always provided an excellent level of timely and accurate accounting and management information for the two restaurant businesses we have worked with her on. I would highly recommend her.

Chris Curry Managing Partner at Piper Private Equity

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Sarah has provided us with the complete package to managing the financial side of our business confidently and thoroughly. She has been on hand to provide advice on a number of elements of our business from business rates to payroll. Using such hassle-free software like Receiptbank has meant that we are able to submit invoices and receipts to Sarah and her team using our phones and via email – this has really been so tailored to the way we run our business.

Lee Price Director of Gloucester Vapes Ltd

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The tax advice Sarah has given me has been so invaluable to running a profitable and competitive business. Sarah is able to be the friendly and approachable person I’ve needed but has not compromised on her ability to tell me things the way they are.

Marie House Owner at Mez-Mer-Eyez

It was so beneficial to be able to meet in person with her on a regular basis

Sarah managed the accounts for the three hotels I co-owned. It was so beneficial to be able to meet in person with her on a regular basis to discuss and review what was going on with the financial side of my business.

Ziya Akguneyli Managing Partner at Practical Choice Partnership

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Sarah has been an invaluable tool for the growth and success of my business. I know I can depend on her to always be at the end of the phone any time of day to answer my questions and give me advice. Sarah joined Turtle Bay in 2015 and set up and managed a new finance team and implemented accounting software. The work Sarah has done has been so integral to the health of my business and I would wholeheartedly recommend her to others.

Ajith Jayawickrema Founder of Turtle Bay Restaurants Ltd

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We had been using in house finance staff for years and were not getting management accounts on time. Having spoken to other companies and businesses we realised that we were not abreast of current best practices and what other facilities were out in the market place. One of our business mentors said we should consider using Virgate Accounts as he had worked closely with them on some of his other business, and he effected an introduction.

The team at Virgate have put in place an accounting and inventory system (Xero and Unleashed) that allows us to see everything in real time. Whilst it’s still early days we have already seen benefits in cutting out huge amounts of paperwork and the handling of it, knowing exactly who owes us what and when, and what we owe and when. Large savings have been made which has helped our cash flow by discovering inaccuracies in the old way we were doing things. It is clear we will become much more efficient, have an accurate handle on our accounts, and free up time to concentrate on growing the business.

We already have and would continue to recommend Virgate to other businesses. The team is friendly, dynamic, efficient and works with you for the benefit of your business and a fraction of the cost of having full time in house finance staff.

Jamie Robb Managing Director at Marlborough Tiles Ltd

Their response time is excellent

Whilst we have only been with Virgate for a couple of months, I am already seeing huge benefits to our business.

The transition process was very smooth, with Virgate taking on the responsibility of communicating with the out-going providers, HMRC and suppliers.

Virgate’s accounting systems are vastly better than anything I had seen before, a high level of electronic processing and automation, allowing more time for both parties to analyse the numbers and use the data pro-actively. Virgate’s package encompasses many weekly/monthly tasks that I would do myself giving me much more time to focus my attention on other activities within the business, a more better use of my time.

Their response time is excellent, there is always someone at the end of the phone that can help or they will get back to you as soon as possible – I will often send emails in the evenings or at weekends, and I often get a response even then!!

Whilst it is early days and much of our time is currently sorting out practical issues, I’m looking forward to working closely with Virgate, using their knowledge and experience of our industry to help drive our business forward over the next few years.

I would highly recommend Virgate Accounts for anyone seeking accountancy and payroll services.

Claire Davies Director at The Red Lion (Arlingham) Ltd

They put in place suitable financial management to take the business forward as we grow

We were recommended to use Virgate Accounts and we are pleased we did! Very fast response times, flexible, easy to work with. They helped us sort out our financial management and take it forward to the level we need as we grow.

Their costs are reasonable and you get a very personal service from the people at Virgate – above all, they are not an impersonal bureaucracy like some accountants.

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We chose Virgate Accounts as they were highly recommended by Petticoat Management Services.

They have helped us enormously since the moment we started working with them. They regularly provide us with clear advice and information and it allows us to run a business without the worry. They helped us change over from a sole trader to a Ltd business which was smooth and hassle free as well as providing a great breakdown report each month of our sales and cash flow.

We would definitely recommend Virgate Accounts to other businesses as the service they provide is invaluable and hassle free. They are always quick to respond to any queries and they are very friendly. Plus it doesn’t cost the earth!

Dan Taylor Director at Chosen Fire Protection Ltd

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Sidonie Warren Founder at Papersmiths

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01452 226111
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