Tackling cash flow issues

Many successful businesses have run into problems due to cash flow issues, think of Pollypeck and more recently Carillion. Managing a positive cash flow is an important task and as the credit crunch demonstrated a business can’t guarantee to borrow money just when they need it.

Here are some tips and steps every business can take to keep cash flow positive.

Credit score your customers – I have used many different services to monitor credit ratings – creditsafe is a good option and there are even free services popping up which may be worth using in the future. If you watch carefully your customers you should be able to reduce the risk of a bad debt, if you do have a lot of your eggs in a single basket then taking out credit insurance is a good option. Bad debts are painful, hit cash flow and always dent profitability due to unexpected drops in sales.

Regularly challenge your costs – I try to spend time each month digging into different P&L codes and considering could this be done differently?, cheaper? or avoided at all? A good example is one from a recent client, they had been using their own bank RBS to make foreign currency payments, these had grown over time from ocassional to several times per week, I introduced them to Transferwise which saved them around 0.25% on each transaction which with an average of $6,000 weekly saved £150 per week or £7,800 per year.

Bring in a Part-Time Finance Director or work with a Portfolio Finance Director – A good FD pays for themselves, both in good advice and in better financial planning, it is surprising how small savings build up and turn into larger ones. Often a growing SME needs an FD but because of the costs involved and the scale of their business they are reluctant to hire one, and not attractive to the FD at that stage either, hiring a part time or portfolio FD solves these problems, a high calibre Finance Director at a fraction of the cost.

Planning ahead – If your business has a rolling annual forecast model complete with Profit and Loss Account, Balance Sheet, Cash flow and Cashflow Available for Debt Service (CFADS) then you are in a good place to work with lenders ahead of time and to raise debt and equity, than if you are caught with a suddent short term cash flow issue which are usually more expensive to finance and get out of.

Improve sales and margins – A detailed review of contract profitability often reveals that 80% of the profit comes from 20% of the customers and 80% of issues from a different 20%. By understanding your real profitability a business can manage price increases better so problem customers pay more to cover their maintenance. There is no such thing as bad freight only bad rates which is what one of my old bosses used to say, and the adage is a good one, customers are always good if they pay enough and often the vocal ones manage to get away without paying their way.

If you need a part-time Finance Director or Portfolio FD then reach out to us today we always have FD’s on our books ready to help and if not we can always source great candidates quickly. You’ll soon find that a good FD can and will do all the above and so much more!


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