Increase your bank balance

During tough economic times, it is more important than ever that businesses take every step possible to protect cash flow.

With banks and other financiers remaining cautious about lending to new and even existing customers, businesses should continue to protect themselves against cash shortfalls. Whilst the green shoots of recovery remain elusive for many, it is imperative that procedures are in place for monitoring cash flow and working capital.

Companies with money in the bank are obviously better equipped to deal with any crisis that arises. An accurate cash flow projection is essential; it can alert you to potential trouble before it occurs, enabling preventative measures to be implemented.

To improve cash flow management, consider the following:

Direct Debit

If you are paid for the goods and/or services you supply by cash, cheque, bank transfer or standing order, then your business is in effect being controlled by your customers! Collecting payments from your customers by direct debit puts you firmly back in the driving seat.

Once a customer has signed a direct debit instruction and it has been actioned by their bank, it can be used to collect varying amounts (one off bills or monthly charges). You, the payee, can simply indicate a different amount each time.

No more endless credit control calls chasing customers for overdue debts, no more queuing in the bank to pay in cheques and cash, no more waiting for cheques to clear before accessing the funds, no more bounced cheques, no more false promises and excuses as to when you will be paid!

What you will see is a dramatically increased bank balance, reduced credit control costs, reduced bank charges (direct debits are cheaper to process than other payment methods), freed up time for you and your staff and more accurate cash flow forecasting (you will be more aware of when and how much to expect from customers).

If you would like more information on direct debit, please call us on 01923 800444 or email us at experts@meadesandco.co.uk

Stock

There are a number of risks associated with carrying too much stock, such as tying up funds that could be used elsewhere in the business, incurring excess storage costs and stock piling goods that may eventually become obsolete. The aim should be to focus on fast moving, profitable lines, in order to help your business gain competitive advantage. If you are holding too much stock, consider discounting slow moving items to help generate cash, whilst eliminating unprofitable items altogether.

Work in progress

With WIP, time is money and it has to be financed in terms of both materials and labour. If it is not properly managed, quick cash-turn and profit opportunities are lost. If you are planning to embark on a large project, agree a staged payment plan to enable you to manage cash-flow. This will also benefit your customers, enabling them to spread payments, rather than being hit with a final bill at the end of the project. It is also good practice to invoice additional costs as they arise, to avoid any disputes at a later date.

Debtors

Chasing late debtors, particularly during an economic downturn, can be time consuming and hard work. It is advisable to carry out a credit check before taking on any new customers, agreeing your business terms in writing before opening an account. Such terms can include early settlement discounts and interest charges for late payments. It is also important to have a credit control policy in place with clearly defined credit limits for customers. Debtor lists should also be reviewed and monitored on a regular basis and a policy set up for chasing and dealing with late paying customers.

Creditors

Suppliers play a key role to the success of your business and it is important to understand their terms of business to ensure they fit in with your needs. If you are involved in one off contracts, review the terms and conditions and renegotiate if necessary. Agree extended payment terms in advance of a big contract, rather than running up excessive credit or delaying payment.

Personnel

Be realistic about staffing requirements. Ensure you have a good business case to support recruitment of new personnel. Look after high performers - retaining good staff is cheaper than recruiting and training new ones. If you need to reduce staff costs, consider alternatives to redundancy such as short-time working, pay freezes or cuts and the removal of overtime. Keep staff informed and engage personnel in cash management and cost-control strategies, setting targets and encouraging suggestions for improving process efficiencies.

Expenses paid in advance

It is not only business rates that can be paid in instalments – many costs can be spread to improve cash-flow. Examine all your payments in advance and see if there is a payment plan option that suits your business. There may be an interest charge but this could still be less than you pay for your bank facilities.

Overheads

It is important to review your overheads regularly, differentiating between those that are mandatory and those that are discretionary. All discretionary payments should be reviewed to ensure they support the strategy and future development of the business.

Equipment

Review fixed assets regularly and aim to sell those no longer required. Whilst business plans should include a replacement programme, it is important to distinguish between essential additions and 'luxury' items.

Funding, grants and other help

Plan ahead when loan facilities need reviewing and allow sufficient time for negotiation with current or potential backers. Consider other financial sources such as asset-based lending (e.g. invoice discounting or debt factoring), payroll funding and private investment. There are also a number of government funding opportunities to look at. For example, when considering a new venture, it may be possible to obtain funding from Business Links or other organisations to assist with feasibility study costs.

Tax and VAT

All companies must file their accounts in good time. If you need to delay paying your taxes, negotiate with HMRC sooner rather than later. Take advantage of HMRC’s Business Payment

Support Service scheme to gain more time to pay (although be realistic when negotiating deferred terms). Ensure the VAT scheme you are using is the most appropriate one for your business. If you have any doubt about this, ask your accountant.

Work with your bank

It is important to develop a good working relationship with your bank to ensure they understand your business requirements. Make sure that the business's financing arrangements are properly structured and supported by accurate, up-to-date financial information. It is important not to breach any agreed covenants.

Key performance indicators

Identify the KPIs for your business (particularly those relating to cash) and monitor them regularly. Useful KPIs could include cash in the bank, debtor days, stock turnover, sales leads generated, fulfilled orders and gross margin.

And finally.....

Cash is the lifeblood of every business - whether in good times (when business opportunities are expanding) or in recessionary periods (when margins are tight). Controlling cash is essential for survival and success. Without cash to pay suppliers, staff and to service loans, any business, even a profitable one, will ultimately fail.

Remember;

“ Turnover is vanity, profit is sanity and cash is reality”

If you would like a copy of our free guide “20 Ways to Improve Your Cash Flow”, please call us on 01923 800444 or email us at experts@meadesandco.co.uk