Top 8 Ways to Improve Cash Flow

Cash flow is the lifeblood of any organisation, and it can make or break a company.

However, increasing cash flow can be a challenging task, especially if you have limited resources. 

But don’t worry, you’re in safe hands. We’ve outlined the top 8 ways on how to improve cashflow, regardless of the size of your business. 

8 ways to improve cash flow

1. Do a deep dive into your expenditure

First things first, in order to improve cash flow and plan for the future of your company you need to know exactly how much money you’ve got coming into the business vs. how much you’re spending. 

Start by looking at your income:

Make a list of all your income streams from the previous year in order to detect peaks and seasonal trends (i.e. a boost around the holiday season). This will give you a better understanding of your customers’ spending patterns and which areas of your business are thriving.

Then look at your expenses:

Just like for your income, make a list of all the things you are spending money on such as: employee salaries; office rent; travel and accommodation for the sales team.

Now, for some of these expenses, like employee wages, there’s no wiggle room. But having a clearer picture of all your expenses will help determine where you can cut costs or look for more competitive deals.
 

Finally, compare the two: 

If you find that there are periods during the year when your expenses exceed your income, you can start to question why this is happening. 

2. Increase your prices

It might sound like something you should discuss with your senior management team first (and it definitely is). But even a slight increase to your prices, combined with a small reduction to your costs can go a long way. 
 
Ask yourself: would your clients care? Well, yes, they probably would care if they were told they had to pay more money. But would they care if prices suddenly went up by one or two percent? Probably not.

3. Send out your invoices ASAP

It’s a no brainer really, sending invoices out immediately helps expedite the payment process by encouraging clients to settle their debts promptly.

Make sure your invoices include:

• Clear terms and conditions. 
• The due date in bold at the top and on the payment slip. 
• Instructions for accepted payment methods. 

By immediately sending out accurate, and easy to read invoices, you reduce the risk of late payments and improve cash flow for your business. 

4. Entice your clients to pay sooner

Everyone loves an incentive, and this one’s a win/win for both you and your clients: Offer discounts for early payment. 

Incentivising customers to pay sooner serves multiple benefits. It helps speed up cash flow, providing timely access to funds for both operations and growth. Additionally, it contributes to strengthening your business’s financial position. 

5. Concentrate on building customer loyalty

By focusing on building customer loyalty you can increase retention rates.  
 
You can also ensure more repeat business, maintain a steady cash flow, and turn loyal customers into brand advocates who attract new business. 

6. Invest in your company 

Investing in your own business is crucial for boosting skills, productivity, and overall promotion, which directly impacts cash flow.  
 
While there is an initial cost involved, such investments lead to streamlined operations and improved efficiency. Whether it’s upgrading skills, optimising workflows, or enhancing marketing strategies, the aim is to reduce costs and increase profits.  

7. Improve your inventory

You can increase cash flow by improving your inventory through regular checks to identify “slow-moving items”. 
 
By selling these items at a discount – or discontinuing them entirely – you free up cash tied in inventory and prevent it from jeopardising your cash flow. 

8. Get rid of wasted expenses

Start by asking your employees for input and conduct audits to identify unnecessary costs.  
 
By identifying and cutting out these expenses, you’ll save money that can be redirected towards more productive areas of your business. This will ultimately improve cash flow.

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FAQs

Why is it important to improve cash flow?

By improving your cash flow, you can ensure that your business is here to stay.

You’ll be able to: 

• Invest in new business ventures. 
• Hire more employees.  
• Plan for the future. 
• Meet payroll. 
• And more.

Are there different types of cash flow?

Yes, there are the three primary classifications of cash flow: 

• Cash flow from operations (CFO) 
• Cash flow from investing (CFI) 
• Cash flow from financing (CFF)

These will all appear on the cash flow statement on your company’s financial statements. 

What Are Management Accounts? (And How to Prepare Them) 

 

Management accounts offer a window into your business’s financial status, aiding senior management in decision-making and implementation.

This practice holds significant value for all organisations—so regardless of your business size or industry, it facilitates comprehensive insights into past, present, and future financial standing across your entire business.

This article will provide you with an overview of how to prepare management accounts. 

First things first, exactly what are management accounts?

Management accounts, typically generated monthly or quarterly, provide a detailed overview of your company’s financial health. They include key components such as: 

• A balance sheet. 
• A cash flow statement. 
• A brief report. 
• A profit and loss account.

With accurate management reports, you can spot current business trends, address issues regularly, and track your business’s evolution.  

Although they are not a legal necessity and don’t need to be filed with HMRC, they will provide you with greater financial management than ever before and help your company expand.  

Why are management accounts important?

For any business aiming to grow and succeed, management accounts are essential.  
 
By keeping track of your income and spending regularly, you’ll gain valuable insights into your financial health and potential for growth.  
 
Continuous monitoring allows you to make informed decisions and adjust your strategies whenever necessary.  
 
Management accounts go beyond just looking at your bank balance – they take into account factors like upcoming expenses, revenue streams, and market conditions, giving you a full picture of your company’s finances.  
 
Quickly spotting sales trends helps you plan better and seize expansion opportunities, while understanding your profitability margins and trends enables you to make strategic decisions aimed at boosting your net profit.  
 
In short, management accounts provide you with the tools and information you need to thrive and succeed in today’s competitive business world.

How to prepare management accounts

Management accounts are most useful when they contain pertinent facts tailored to your business and are presented in an accessible format for colleagues throughout the company.

Here’s your step-by-step instructions on how to prepare management accounts: 

1. Gather data 

The cornerstone of management accounting rests on the quality and depth of your collected data. Without precise and pertinent data, any subsequent analysis and insights will be distorted.

You should consider:

Source identification: Determine your primary data sources, which may include accounting software, CRM systems, sales platforms, or manual records. Knowing where to extract data ensures crucial information isn’t overlooked.

Time period selection: Decide on the timeframe for which you’re preparing the management accounts. Whether it’s monthly, quarterly or annually, this will dictate the range of data you need to collect.

Data segregation: Categorise your data into sections. For financial data, this could mean segregating revenue, expenses, assets and liabilities. For operational data, segregate sales, production, inventory and customer feedback.

Automation tools: Explore tools and software for automating data gathering, saving time and reducing human error. Integrating different systems ensures seamless data flow and accuracy.

Data validation: Validate the gathered data for any anomalies, such as high expenses in a month or sudden sales spikes, to identify errors that need correction. 

2. Ensure accuracy

Ensuring data accuracy is essential. Inaccurate data can result in misguided decisions, potentially harming your business.

To ensure data accuracy you should employ: 

Cross-verification: Always verify the data collected by comparing it with external sources. For example, ensure that the bank balance in your accounting system matches actual bank statements. 

Reconciliation: Regularly reconcile accounts to identify and resolve any discrepancies. This includes verifying balances with HMRC, suppliers, and other stakeholders.

Audit trails: Maintain clear audit trails to ensure accuracy and trace any discrepancies back to their source. 

3. Produce financial statements

Financial statements form the foundation of management accounts, offering a comprehensive view of your company’s financial well-being.

You should draft a: 

Profit and loss report: This statement provides a comprehensive overview of the company’s revenue, expenses, and overall profitability within a defined period. Accurate categorisation of income and expenses is essential for understanding profit margins and operational efficiency.

Balance sheet: This document presents a snapshot of the company’s assets, liabilities, and equity at a specific moment in time. Regular updates and reviews of assets (such as inventory) and liabilities (like loans) are crucial to reflect the current state of the business accurately.

Cash flow statement: This statement offers insights into the company’s liquidity by illustrating cash inflows and outflows. It is essential for assessing the company’s ability to cover short-term liabilities and operational expenses.

4. Incorporate operational metrics

Operational metrics offer a detailed perspective on your business’s performance, enhancing the financial data.

You should consider:

Sales and production figures: Monitor monthly, quarterly, and yearly sales alongside production costs to assess efficiency and profitability.

Inventory levels: Track inventory levels to maintain optimal stock levels, minimising storage costs and ensuring timely deliveries.

Customer satisfaction metrics: Utilise tools such as Net Promoter Score (NPS) or customer satisfaction surveys to evaluate customer sentiments regarding your products or services, identifying areas for enhancement. 

5. Prepare an executive summary

An executive summary at the beginning of your management accounts can be very helpful. This section could highlight:

• Key monthly data/figures. 
• Notable changes or concerns. 
• Net profit margins. 
• Turnover ratios. 
• A departmental overview. 

6. Analyse and interpret

When analysed and interpreted accurately, data becomes actionable insights.

Consider the following:

Trend analysis: Identify patterns in sales, expenses, and other key metrics. Recognising these trends early can help in capitalising on opportunities or mitigating risks.

Budget vs. actual: Compare forecasted budgets with actual figures to pinpoint overspending or areas of savings.

SWOT analysis: Conduct regular SWOT (Strengths, Weaknesses, Opportunities, Threats) analyses to inform strategic decisions and identify growth opportunities or potential challenges. 

7. Share the insights

Communication is key. Sharing insights ensures that all your stakeholders are on the same page.

You should consider:

Regular updates: Conduct frequent meetings with key stakeholders to review findings from management accounts, promoting alignment and informed decision-making.

Visual representation: Utilise charts, graphs, and other visual aids to present data, enhancing comprehension of complex information.

Recommendations: Don’t just present the data. Offer recommendations based on the insights. This proactive approach can guide the business towards better decision-making. 

FAQs

How often are management accounts prepared?

While there’s no fixed schedule for preparing management accounts, the common practice is to do so monthly or quarterly, allowing business owners to maintain regular oversight of their finances. 

Can management accounts help secure new funding?

Yes, management accounts are crucial for securing new funding. They give investors and lenders a clear view of the company’s financial health and potential for growth, building confidence in potential funders.

How are management accounts different from statutory accounts?

Statutory accounts are primarily used for external reporting and regulatory compliance, while management accounts are internally focused, providing guidance for strategy, assessing financial position, and monitoring progress.

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How can organisations reclaim VAT on fuel? 

 

Organisations in the UK can reclaim VAT on the fuel component of mileage expenses paid to individuals.  
 
However, navigating this process is complex and requires gathering specific evidence to meet HMRC requirements.  
 
In our blog, we’ve compiled all the necessary information on reclaiming VAT for fuel and petrol expenses during business trips, helping you choose the best approach for your organisation. 

Who is eligible to reclaim VAT on fuel? 

To reclaim VAT on business expenses, including fuel, you need to be a VAT-registered business.  
 
If your annual turnover is below £85,000, you can opt to register for VAT and claim back VAT on expenses. However, if your annual VAT taxable turnover exceeds £85,000, VAT registration is mandatory.  
 
It’s also worth noting that if you’re under the VAT Flat Rate Scheme, you can’t reclaim fuel expenses. 

How much VAT on fuel can you reclaim?

According to HMRC guidelines, you can reclaim 100% of the VAT on fuel used for business purposes.  
 
To comply with HMRC requirements, you must maintain precise mileage records and retain fuel receipts as evidence of expenses. 

How do you reclaim VAT on fuel usage? 

To reclaim VAT on fuel usage, ensure it’s used solely for business purposes (VAT can only be reclaimed on business-related expenses). 

However, as many small businesses and self-employed individuals use their vehicles for both business and personal purposes, this can complicate the process of reclaiming VAT on fuel.

There are two ways you can reclaim VAT on fuel:

1. Reclaim all the VAT paid on fuel purchases and pay the appropriate fuel scale charge for your vehicle. 
2. Claim VAT only for the fuel used during business trips by maintaining thorough mileage records to demonstrate usage exclusively for business purposes. 

How can you reclaim VAT with a fuel scale charge?

If you use a business car for personal purposes, you can reclaim VAT on all fuel usage, including both business and personal use. Then, you’ll pay a fuel scale charge to offset the personal use, eliminating the need for detailed mileage records.

Here’s how it works:

1. Reclaim VAT on all fuel used for your vehicle. 
2. Use HMRC’s VAT fuel scale tool to calculate your fuel scale charge. 
3. Include the fuel scale charge on your VAT return.

However, if your fuel usage is very low, the fuel scale charge might exceed the VAT you reclaim, making this method unsuitable for some businesses. 

Let’s take a look at an example

Imagine you make quarterly VAT submissions and your company uses a BMW 318i with a CO2 emissions figure of 146.

The road fuel surcharge for this emissions figure is £349 per quarter, consisting of a basic charge of £290.83 and VAT of £58.17.

You can deduct the basic charge (£290.83) from the total fuel costs for its Corporation Tax calculation.

For VAT purposes, your company can reclaim the VAT paid on fuel purchases, excluding the VAT portion of the road fuel surcharge (£58.17). 

How can you reclaim fuel VAT by calculating business mileage?

As you now know, you can make a claim for only the fuel you use for company purposes.

For vehicles such as pool cars, commercial vehicles, and petrol machinery, keeping an accurate mileage record is simpler, as all mileage will have been completed for business purposes.

If you use a vehicle for both business and personal use, you will need to keep a detailed record of the purpose and mileage of all your journeys. Once you have calculated the percentage of your mileage that was for business use, you can claim that percentage of VAT back from HMRC. 

How do you prove business mileage to HMRC?

HMRC requires that you keep an accurate mileage log. For this to be compliant with HMRC standards, you must include:

• Date of the journey 
• Purpose (personal or business) 
• Start and end addresses (with postcodes) 
• Total miles driven

You should request monthly mileage logs from all your employees.

It’s also worth noting that any self-employed individuals need to maintain their own records. 

How do you submit a VAT claim to HMRC? 

As a business, you can claim back VAT on fuel expenses, along with other business costs, in your VAT return. If you’re VAT-registered, you’ll need to submit a VAT return every three months, called an ‘accounting period.’  
 
HMRC requires a return to be sent at the end of each accounting period, even if you have no VAT to pay or reclaim. 

The question you’ve been waiting for: Is it worth it?

As you may have guessed, many businesses avoid reclaiming VAT on fuel and petrol due to the complexity of bookkeeping. However, it can be beneficial if you provide free fuel to employees for business purposes.  
 
If this is something you’re interested in, keep records for up to four years, as VAT on fuel can only be reclaimed within this timeframe, and remember to use Fuel Scale Charge and Flat Rate Claim to simplify VAT calculations for fuel expenses. 

FAQs 

What is a reasonable rate for fuel expenses? 

To determine a reasonable rate for fuel expenses, businesses can use HMRC’s Advisory Fuel Rates, which provide standard mileage rates based on engine size and fuel type. These rates apply to both VAT on business fuel usage and private journeys using company fuel.

For employees using company cars and fuel:

• The company can reimburse the employee at the advisory rate for business mileage and reclaim VAT on the payment. 
• Alternatively, the company can cover the fuel cost, then charge the employee for private mileage, reclaiming VAT on the fuel cost minus the employee’s contribution. 

Can sole traders claim petrol costs? 

As a sole trader, you can claim petrol costs as part of your business expenses. You’re eligible for a mileage allowance of 45 pence per mile for the first 10,000 miles when using a car for business purposes. After exceeding 10,000 miles, the allowance reduces to 25 pence per mile. If you use a motorbike for business, the mileage allowance is 24 pence per mile.

Take advantage of our business mileage tracker

If you need help calculating your fuel expenses, or with any other aspect of your travel expenses, book a demo today to see how we can help. 

HMRC Mileage Rates 2024: Everything you Need to Know

 

Did you know that your employees can claim back hours spent on the road? 

Providing mileage allowance for employees who drive for work has become more popular in recent years. However, with HMRC’s many rules and updates, understanding how this process operates can be confusing for both you and your employees. 

This blog aims to offer a complete guide on everything you need to know regarding HMRC mileage reimbursement rates in 2024.

What is HMRC’s mileage allowance?

Car allowance mileage rates allow employees to claim back vehicle expenses for business purposes, covering costs like petrol, road tax, and insurance. Instead of individually calculating wear and tear on each vehicle, HMRC uses standard pence per mile expenses called ‘Mileage Allowance Payments’ (MAPs).  
 
This deduction applies to any employee using their vehicle for business. The purpose is to align with tax regulations, ensuring business costs are tax-deductible and not subject to tax when incurred from a personal account. 

How much is the HMRC 2024 mileage allowance?

With the HMRC set mileage allowance, the same rate is applied for every employee, depending on the type of vehicle they use.  

Type of vehicle	10,000 miles	10,000 + miles
Cars and vans	45p	25p
Motorcycles	24p	24p
Bikes	20p	20p

 

Calculating business mileage is straightforward. All you need to do is multiply the miles travelled by the mileage rate for your vehicle.

For instance, if an employee travels 18,000 business miles in their car, the mileage deduction for the year would be £6,500 (10,000 miles x 45p + 8,000 miles x 25p)

It’s also worth noting that if they travel with colleagues from the same company, the driver can claim an extra 5p per mile per passenger.  

 

Let’s take a closer look at each milage allowance  

 

HMRC mileage reimbursement rates for cars and van

The HMRC-approved mileage rate for cars and vans is £0.45 per mile for the first 10,000 miles per year. After that, it’s £0.25 per mile

For example, if your employee drove 19,000 miles for work this year, they’d receive:

• £4,500 for the first 10,000 miles (10,000 x £0.45) 
• £2,250 for the next 9,000 miles (9,000 x £0.25

For a total reimbursement of £6,750

Hybrid cars follow the same standard rates, while electric cars have a fixed rate of £0.05 per mile, with no limit on mileage. 

 

HMRC mileage reimbursement rates for motorcycles

If your employee owns a motorcycle, they’re eligible to receive £0.24 per mile when driving for business purposes.

Unlike cars and vans, motorcycles are not subjected to the 10,000 miles limit, which means that going above this threshold does not change the 24p rate.

For example, if your employee drove 5000 miles for work this year on their motorbike, they’d receive

£0.24 x 5000 = £1,200 in tax-free reimbursement.  

HMRC mileage reimbursement rates for bicycles

Those who own bicycles might not be paying for fuel, but still incur costs such as insurance, as well as general wear and tear during use. The government recognises this and awards £0.20 per mile for an unlimited amount of business-related mileage.

For example, if your employee cycled 450 miles for eligible business trips this year, they’d receive

£0.20 x 450 = £90 to in tax-free reimbursement. 

What journeys can employees claim mileage on?

Whether your employees drive to work frequently or occasionally, it is worth keeping track of their mileage and understanding what trips qualify to be exempt from taxes, and which do not.

Business journeys employees can claim:

• Travelling from one office to another. 
• Travelling to a temporary location to conduct business (i.e., meeting a client or attending an event).

Business journeys employees can’t claim:

• The daily commute to a permanent office. 
• Travelling to a location very close by. 

• Any travel undertaken for private purposes, even if work-related activities such as making calls or running errands are included.

The only tax-free method for reimbursing business miles is through the approved mileage allowance. Giving an employee a company car or a fixed sum towards petrol will both be taxed, so be aware here.   
 
Other travel expenses like parking charges and road tolls while using a company vehicle are covered under subsistence expenditure, not the mileage allowance. 

 

What are HMRC advisory fuel rates? 

HMRC advisory fuel rates apply to company-owned cars and serve two main purposes:

1. Reimbursing employees for business travel expenses incurred in a company car. 
2. Managing reimbursements when employees use the company car for personal travel and need to repay the business. 

Company car fuel rates are reviewed every three months and can change based on actual fuel rates. You can only rely on the previous rates for up to one month before switching to the current rates.

HMRC fuel rates are influenced by factors like engine size, manufacturer data on miles per gallon, current fuel prices, and the calculated rate per mile

If your employee is using a hybrid car, it’s treated like a petrol or diesel car. But if they’ve got a fully electric vehicle, they are reimbursed at £0.09 per mile. 

The following tables were taken from HMRC and have been in place since 1st December 2023. They’re provided with the purpose of breaking down exactly why fuel rates are at their current numbers: 

 Petrol 

Engine size (cc)	Mean MPG	Fuel price (per litre)	Fuel price (per gallon)	Rate per mile	Advisory fuel rate
Up to 1400	49.5	152.4 pence	692.8 pence	14.0 pence	14 pence
1401 to 2000	42.1	152.4 pence	692.8 pence	16.5 pence	16 pence
Over 2000	26.7	152.4 pence	692.8 pence	26.0 pence	26 pence

 

Diesel  

Engine size (cc)	Mean MPG	Fuel price (per litre)	Fuel price (per gallon)	Rate per mile	Advisory fuel rate
Up to 1600	56.7	160.4 pence	729.1 pence	12.9 pence	13 pence
1601 to 2000	48.0	160.4 pence	729.1 pence	15.2 pence	15 pence
Over 2000	36.3	160.4 pence	729.1 pence	20.1 pence	20 pence

 

LPG (Liquefied Petroleum Gas) 

Engine size (cc)	Mean MPG	Fuel price (per litre)	Fuel price (per gallon)	Rate per mile	Advisory fuel rate
Up to 1400	39.6	86.7 pence	394.1 pence	10 pence	10 pence
1401 to 2000	33.7	86.7 pence	394.1 pence	11.7 pence	12 pence
Over 2000	21.3	86.7 pence	394.1 pence	18.5 pence	18 pence

In reality, only the size of the vehicle’s engine and its equivalent price per mile matter.

Let’s consider an example where your business owns a company car.

The car has a 1000cc petrol engine, an employee pays for fuel for 3000 business miles per year. Additionally, the same employee uses the company car for personal use for 800 miles per year.

Using HMRC’s advisory fuel rates for petrol cars with engines up to 1400cc at £0.14 per mile:

• £0.14 x 3000 miles = £420 for business use. 
• £0.14 x 800 miles = £112 for personal use.
   

Therefore, your business can claim £420 from HMRC through the fuel advisory for 2024, and you can also recoup £112 from the employee for personal use. 

 

FAQs 

 

What vehicles are eligible for mileage allowance? 

Employees are eligible to receive mileage allowance payments for any vehicle they own and have registered with the DVLA, such as cars, vans, motorcycles, scooters, and bicycles, provided these vehicles are used for work purposes. 

When do you need to report HMRC mileage reimbursement rates?

If an employee travels over 10,000 miles, you must report it to HMRC using form P11D. Paying employees more than the approved amount of 45p per mile is also considered a benefit and must be reported on a P11D and taxed. 

What’s the best way to reimburse your employees in 2024? 

Tracking and calculating individual mileage allowances for employees, especially for SMEs with company cars, can be tedious. However, expense management software like Capture Expense, uses accurate reimbursement features to simplify this process by automatically calculating mileage based on journey data and HMRC figures, saving time and effort.

 

Ready to streamline your mileage allowance process?

Book a demo with Capture Expense today and discover how our software simplifies tracking, calculating, and reimbursing mileage while ensuring compliance with HMRC mileage reimbursement rates.