75. How Can I Squirrel Cash From Somewhere?

Question

I am the owner and manager of a boutique executive search consultancy business. The business turns over about £5m and I have half a dozen billing consultants who, like me, are heavily involved in business development. In addition we have a small team of researchers and a couple of support staff. I have a part-time book-keeper who does date entry, runs the payroll and pays the bills. I do not have what I would call a “proper” finance person. I see from our bank statements that we are regularly up against our overdraft, but I am so involved in bringing in business that I do not have the time to develop management reports that tell me how my business is doing.

How can I quickly get on top of my cash flow and sleep easy at night?

Answer

There are 2 separate (yet linked) points you are raising:

  1. Day to day management of cash; and
  2. Having a broader suite of management information (MI) to help you really manage the business proactively.

Accurate cash flow projections are a vital element of the day-to-day financial management of any business – one could even go so far as to say they are the MOST vital element.

A business might be running at a profit – but if there is insufficient cash in the bank payments cannot be made. The trusted spreadsheet is used by many trained accountants. A weekly rolling cash flow projection will show projected receipts matched against outgoing payments. If the projection covers a calendar quarter (13 weeks), rather than just one week for example, it will capture major quarterly outgoings such as VAT and rent.

As the name implies, the main components of the cash flow are the receipts from your sales and the payments that need to be made, including VAT where appropriate.

Once you have established when you expect funds to come in and go out, the pinch-points in your cash flow will become apparent. You will then be in a position to manage them more effectively.   If your cash flow position is critical and an unauthorised overdraft is predicted, you must take urgent action to address – your banker will not like surprises.

Here are 7 actions to consider – and these are equally applicable to most other types of business-to-business consultancy firms too:

  1. Contact your major clients to determine whether their payments can be accelerated. You need not direct your enquiry to your business contact, but a discreet call to the client’s accounts payable department may elicit funds more quickly;
  2. Approach your bank to see whether they might be prepared to provide additional (possibly short term) facilities. This process will take some time while the bank conduct their underwriting. The bank may well require security. This may take the form of your debtor (or receivables) book and a personal guarantee;
  3. Investigate other sources of finance, such as invoice finance, crowd-funding, or have a look at the various Government funding schemes;
  4. Seek to delay or spread major payments. Approach HMRC to request a “time to pay” arrangement for VAT and/or PAYE/NIC. HMRC have been known to take a sympathetic approach to a one-off request and may even agree to spread a particular liability over 6 to 9 months, as long as subsequent liabilities are met on time;
  5. Approach your landlord to see if they might be amenable to changing a quarterly rent commitment to a monthly commitment, on a temporary basis. They are not under any legal obligation to do so and may well refuse, but if you do not at least try, you will never know. They are most likely holding a rent deposit after all;
  6. If suppliers of services work to a frequency other than monthly, e.g. quarterly or annually, approach them to see if they will enable you to spread payments over a shorter timetable;
  7. Embark upon a cost saving programme by cutting unnecessary costs. Bear in mind however that cutting staff may incur additional cost due to termination payments including the payment of notice periods.

 

Remember, the more accurate and reliable your cash flow projection, the fewer surprises or unpredictable factors there will be in your business. And, incidentally, the easier you (and your bankers) will be able to sleep at night.

Tectona’s FDs regularly help prepare cashflow forecasts and management accounting reports which “take the pulse of your business” and give you an unfair advantage.

If you need a bit more bandwidth on this then contact Tectona.

And if, perchance, you are hungry for more on the whole area of MI, we have recently published our Entrepreneur’s Guide to “Measuring what Matters”.

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