It is time to re-iterate that keeping control of cash (and keeping positive bank balances) within a business is more important than ever!

I know it seems obvious, but why is it more important now than usual?

One of the biggest reasons has to be that banks or other financial institutions only like to lend to businesses that don’t really need it… and when you do need it, they don’t want to lend! 

I know it seems a bit ridiculous, but it’s true! One of the best ways to encourage potential lenders to offer facilities is to carry a healthy surplus of cash on the balance sheet. My best advice is to arrange credit, both trade and banking, when you look financially strong,

Don’t wait until you need it… you will be disappointed! Simpler said than done, of course, but how exactly do we make our balance sheet look strong and keep our cash? We have to start with the basics.

Does the business generate cash? If it doesn’t, then the business is probably losing money and care needs to be taken about viability, investment cycles etc. But, that is a discussion for another time!

So, we have a business that generates cash. How do we look after it?

• Create a positive image with your suppliers. Make a regular monthly payment run, the same time every month, and pay
  within terms. A regular time every month is better than paying early, or at random times every month, because your supplier will start to feel that you are organised and efficient. Therefore, they will feel that you are in control and trustworthy. This in turn leads to better terms.
• Keep your suppliers informed. Confirm that a payment of X will be included in your regular payment run, and then deliver on it… Adds to the above.
• Keep on top of your debtors. Only extend credit terms to regular customers who display an organised accounts office. One of the big red flags is a disorganised accounts department. Trust the credit agencies reports, but only so far! Yes they are good, but they work on historical information.. so don’t go all in. Be in regular communication: Ask when a debt will be paid, and send statements on a regular date each month – this acts as a reminder. If in doubt reduce their facility.
• Every time you commit to an expense, ask a simple question: Is this expense going to earn us money? And, is now the best time to do it? Only go ahead if the answer is yes.
• Regularly update your short, 60 day, medium 120 day and long 365 day cashflow forecasts… and do not lie to yourself or paint the numbers pretty! If it looks bad, it is way better accepting that and trying to do something about it than shutting your eyes and hoping!
• I know this can be tricky, but increase your margins. Keep looking for ways to increase revenue. Be it incremental services and sales, or plain and simple price increases where possible and sensible. Look at your cost of sales, increase productivity, shave costs from your suppliers, reduced waste/slippage, literally look at everything that goes into your expense line and question it!
• Put and increase cash on the balance sheet, and share the good news with your bankers and suppliers. Increase facilities when you can, even if you don’t expect to utilise them.

I know this isn’t as simple as I make it seem, but just questioning, looking, and managing will help make you a better and more robust business, and in turn,  fitter and leaner for the future.

Work with us: Call 020 7183 8241.