Is cash flow the lifeblood of business? No, it’s far more important than that.
We frequently hear the term ‘cash is king’, but this can often be thought of as the preserve of other businesses. This is not the case; any business can improve its cash flow, if it works at it. Here are 7 ways that are guaranteed to make a difference to your cash at bank over the next 6 weeks:
1. Chase debtors before or at due date
If ‘cash is king” for every company, and it’s only those that shout loudest that get paid on time, I would advocate shouting loudly. This is of course a metaphorical shout, in other words, you take every opportunity you can to ask nicely for the payment due to you on the DUE date. Make sure whoever is dealing with credit control has a good relationship with the person making the payments at the debtor company.
2. Target receipts
Make sure your credit control people have a monthly target of monies to bring in. This should equate to the month’s receipts, as per the cash flow forecast. It’s prudent to add, say, 5-10% to this figure. For the greatest impact, put the monthly target on a white board wherever the credit control function is taking place. Include a section on this board showing weekly actual receipts and the percentage of the target number that this represents.
3. Invoice accurately
Make sure every invoice that you produce goes out accurately. By this, I mean not only the actual numbers with the VAT correct, but also the address, your bank account details, the date and the reason for any discount being given. This, of course, is particularly relevant if the discount is settlement related.
4. Reduce unnecessary overheads
There are always ways in which we can all reduce our cost base. It may well be that this exercise was undertaken at the beginning of the year. Costs have a nasty way of creeping up on you and very often you are so busy with the day job that these just sneak through every month. In my experience it is worth taking a bit of time out and having another scan through to check where these costs can be reduced, without of course adversely affecting the business.
5. Take a 3-month discretionary spend holiday
Take a short break from entertaining or from placing those adverts in local papers. Maybe you sponsor a local team or organisation? If so, reduce the amount or delay the renewal for a time. It’s amazing how these bits and pieces can add up, and whilst nice to do, possibly won’t have a significant impact on the business if they are geared back for a while.
6. Reduce stock levels
In today’s world, the ‘just in time’ methodology of stock control works very well for many businesses. Running on lower inventory levels means that there is a one off cash flow advantage whilst de-stocking. This will mean accurate forecasting and ordering, and an efficient supply chain, but could well be worth it.
Another option is to have a sale of redundant stock; whilst this may mean the balance sheet takes a hit it will provide a boost to cash flow.
7. Sale and leaseback
Review your fixed assets and consider a sale and leaseback of any that are currently unencumbered. There are a number of companies out there that will finance used assets, however I would caution against funding any assets over and above their useful life.
All of the above cash flow solutions are perfectly within your gift to do now. We haven’t even mentioned negotiating an extension of terms with your suppliers to create an immediate boost to finances. Why not try it – the big guys do it all the time.
If you have any comments on this article or would like to discuss this and other ways of improving cash flow, please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.