Survive the downturn – stay on top of your cash

Today business owners need to concentrate on surviving the effects of the banking crisis and a recession. Here’s how.

By Mark Fuller, managing director of Alliance Fund Managers

Cash is king - always.  Without it you’re bust. Regardless of what type of business you are in you must take a tight grip of it and think about everything in the context of cash management. The three key areas are quality of information, available facilities and working capital and overheads.

Get organised with your cash-flow. You should have a rolling three month cash-flow forecast which is updated regularly (at the minimum - weekly) so you know exactly where you are at any given time.

Don’t be surprised or despondent if assumptions you have made change. As long as you keep a check on the reality of what’s coming in and going out you will be in a much safer position to plan ahead and adapt to circumstances.

Use the assumptions to drive the prioritisation of yours and others time (you need to make the assumptions a reality). Look at the quality of your staff and advisors and if you haven’t currently got the resources in place to ensure you have accurate cash information to hand make sure you get it - now.

Look closely at the working capital facilities you take for granted. Renewable facilities will cost more. Take full advantage of the facilities you have in place and work out precisely what you need.

Be mindful of any unused element of the facilities. For example if you have an overdraft facility of £300k but typically only use £100k then don’t be surprised if the unused element is removed and the facility reduced to £150k. 

Similarly with invoice discounting. If the facilities are for 90% of invoices less than 90 days think about what the impact would be if this changed to 75% of invoices less than 60 days. Companies trading internationally should be looking carefully at their supplier and customer terms.

One company I know recently had a letter of credit declined by a Chinese supplier because of the bank providing it. All of these are easy ways for you to lose the cash headroom you had in your business. Talk to your financiers and make sure that this is not going to happen to you.

Working capital can either be a source of or a drain on cash. You need to manage your stock or your work in progress if you are a service business. Don’t allow your suppliers to force stock on to you and don’t allow uninvoiced work to build up.

Remember that the recession affects everyone. You are part of the business food chain. That means you must bear in mind that your business will be affected by the circumstances of your suppliers as well as your customers.

If your suppliers are under pressure they may alter their terms and prices. If they are in dire straits and you don’t know about it what would be the impact if they suddenly went under leaving you with obligations to a bigger customer?

Take the time to credit check your customers (You can do this quite simply on the internet www.experien.co.uk for a small fee). Remember you are acting as a bank to non paying customers and look what happened to them!

Watch payment trends. You should have first class reporting facilities and be aware of any changes. If a customer has a track record of always paying within 30 days and suddenly starts to take 60 you should investigate.

Think creatively about how you make your payments. A supplier with cash flow problems might really appreciate being paid up front at a discount. You could ask the same of a customer if you are finding things tight.

You must re-evaluate all discretionary spend immediately - you might be surprised at the difference this makes to your bottom line. If you wouldn’t use your own money to buy something, why you would use your company’s?

It’s important to maintain staff morale and goodwill within your business too so communicating the reasons for any major changes needs to be done carefully. It is also very important to review non-discretionary overhead spend.

Those processes and people in your business that have always frustrated but you have been too busy to do anything about need looking at and understanding now. The more aspects of your business that are variable with turnover the better providing you don’t compromise quality and customer satisfaction.  Equally don’t let these be the excuse not to review everything.

In terms of your marketing you should look carefully at how you are positioned and how you communicate to your customers particularly in the current climate.

Are your products or services a necessity, a luxury or a nice to have? How will a recession affect their decision to buy from you? Could you be doing anything differently to ensure they keep buying from you at the right price? Are you watching your competition carefully?

If you follow this advice you WILL be putting your business in a much safer position and ahead of your competitors. The key is not to panic. Stay focused, organised, agile and above all, on top of your cash.

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By LaunchLab.co.uk  on   Nov 16,2008

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Keywords

money    cash    finance    funding    investment    communication    payment   

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