Optimising Cashflow in Challenging Times

Cash is king. It’s one of those many over-used phrases in business that make us cringe when we hear it, but it’s true. Hopefully, you’re fortunate enough that you only cringe at the phrase itself, not the thought of how many days cash your business has left before it runs dry!

Throughout their lifetime companies will frequently go through periods when cash is running low, for a huge variety of reasons. Young businesses haven’t been able to build up reserves yet. Large customers can go into liquidation, abruptly leaving your company in the lurch. Sometimes sales are in decline which puts a strain on cashflow very quickly. Growing businesses need cash to fuel their growth, and it’s so easy to fall into the trap of overtrading where your sales are sky high and increasing every month, but the cash can’t come in quick enough to pay the costs driving that growth.

Sadly, as a business owner, these cashflow issues don’t stop in the office. They follow you home and haunt you throughout sleepless nights. They may even lead to you pulling money from your personal funds to keep your company trading, hoping next month will be better and everything will somehow sort itself out.

Ways to improve your cashflow
Thankfully, there are many ways to improve the cashflow situation within your business. There isn’t a one-size-fits-all solution, because every single business and industry is unique and has its challenges and solutions (which is also great for us as accountants, as the variety keeps our work far more interesting!).

The absolute best way to get a handle on your cash demands is to start with a cashflow forecast. Ideally both an annual forecast and a 13-week forecast. The annual forecast provides a more global view, highlighting the cash peaks and troughs, planning around future tax payments & creditor payments, and bringing clarity to your business’s cash needs ahead of time. A 13-week cashflow forecast provides more of a day-to-day, detailed breakdown of your bank balance in the immediate future, empowering you to make decisions to preserve a positive bank balance and drive towards growth.

Depending on the business, your cashflow forecast could use a straightforward spreadsheet template, or it could use an in-depth all-singing-all-dancing automated forecasting software linked with live information from your accounting records.

Key questions to help you plan
For many of our clients, once we’ve worked together to set up rolling cashflow forecasts they don’t need any further funding or loans. The cashflow forecast gives you the tools and visibility to optimise your cash use. For example:
• Which customers have promised payment this week?
• Do we need to chase a payment which was promised yesterday?
• If we delay paying a single supplier by one week, will it preserve enough cash to pay the wages this month? Do we need to liaise with HMRC to spread the corporation tax bill if possible?
• What’s the effect on cash if we lower the number of days credit available to customers? Will we have enough reserves in seven months to acquire another store location or new plant?
• How many new staff can we fund?
You can play with different scenarios and see the impact they’ll have on your cash as well as your profits.

Funding options for businesses with cashflow issues
For those clients with larger cash issues, whether it’s to rescue a struggling business or support expansion, there are a variety of funding options to suit differing needs.
For some, a straightforward loan or overdraft is enough to plug the gap and allow the business to trade its way out of its problem. Some companies are rich in assets but not cash, so asset finance can release some of the cash currently tied up in assets. I feel like there’s still some stigma around invoice finance, but it can be a massive boost to industries with longer payment terms – and because the facility can increase with your business, it can also be a great option for fast-growing companies who will need that continual support. Importers can take advantage of import finance, which is especially useful for goods with longer lead times which tie up cash while goods are in transit. Companies pursuing growth via acquisitions can obtain finance as part of the arrangement.
A lot of clients I talk to aren’t aware of the diversity of finance options available to them – they’ll naturally default to looking for a traditional loan or overdraft, but there may be better routes for them to take advantage of.

Cashflow solutions don’t always have to end with finance, but I believe they always start with a forecast. Without a cashflow forecast, you cannot know how big the cash problems are and when they’ll hit, and most importantly, how to prevent them from becoming a reality.

Get in touch
If you would like to find out more about how we could support your business, get in touch with our team today at www.haywardwright.com.

About Hayward Wright
Hayward Wright is a leading accountancy firm that works with owner-managed businesses and individuals across a range of sectors. They provide the full suite of accountancy and business advisory services from tax advice to strategy formulation, and payroll to company secretarial services. The firm operates across the Midlands region and beyond and takes a proactive, client-focused approach, priding itself on being about more than just numbers. Visit www.haywardwright.com to find out more.