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The Tough Get Cash

When the going gets tough … the tough get cash!  This is a blog post I wrote in 2008. Thought it was worth resurrecting in the event of the last 24 hours.  In business forewarned is forearmed.

If you find yourself with slightly less coming in each month and your outgoings are rising slightly; not enough to panic about but still …. it’s getting tighter …

Not saying there is – but if there is a down turn just around the corner, it is worth considering some housekeeping right now.  Even if you have a competent bookkeeper, accountant or finance manager, don’t abdicate the ownership of the finances.  It is your company, your tax returns and your solvency.  You need to understand where the money comes from and how it is being used.

In financial terms, the Customer is not King – Cash is King.

Sadly 80% of businesses that go insolvent are actually profitable.  They just don’t have the cash to cover the outgoings.  So here are a few tips to help button up the hatches and weather the forthcoming storm.

Know your cash flow position.

What are your payments in? – Customers,

What are your payments out? – Suppliers, HP finance, bank interest.

When do they occur?

Where are the peaks and the troughs?

What does your bank balance look like in the immediate future, the next payday, and the next quarter day?

 Cut back on the little luxuries

Look at what you are spending out in the office, and at home.  If you shrug your shoulders, muttering that a little extra is not going to make a difference, be aware! Small savings here and there add up.  Change utility providers to get the best deal.  Don’t buy Andrex when yesterday’s free paper will do (joke!)

But don’t cut back on your marketing spend unless you really have to.  It may seem like a large and easy cut back but buyers are your lifeblood so marketing is not a luxury it is an essential. 

Invest some time; looking after your best customers

It is much more expensive to win a new customer than it is to reengage a loyal one.  Keep your best customers closest to you.  You don’t want them looking elsewhere because they don’t feel loved by you anymore.

 Get the people who owe you money to pay up fast

Think about other options than straightforward 30 day invoicing.  Get customers to pay up front on account, offer discounts for immediate or early payment.  Invoice immediately and phone to ensure the invoice has been received, and check everything is ok with the goods or services received.  Sort out any problems quickly so disputes don’t delay payment.  You can legally charge interest on overdue debts, make sure you state this in your terms and conditions of sale and on all invoices.  Send out monthly statements. Phone bad payers the week before your invoice is due to remind them.  Do not extend credit terms to bad payers instead insist on proforma payments.

Issue credit notes rather than refunds if this is appropriate in your business.

Consider factoring, this is when you sell your debt to a factoring company for say 80% of the sales value.  The factoring company takes on the sales ledger administration.  The remainder of the actual invoice is paid to you on receipt of the payment less the % factoring fee.  With invoice discounting the business exchanges sales invoices for cash but raises and chases debts itself.  Bad debt protection can be purchased.

Don’t pay creditors any quicker than is necessary to retain goodwill

And if you know that you are going to have difficulty making a payment in the future, phone the creditor and arrange with them staged payments with an immediate down payment.  Do make sure that you pay the instalments when you said you would.  If you do, they will be more amenable to help in the future.  If you don’t they won’t!

Talk to the bank

Overdrafts are repayable on demand and really should only be used for short-term cash flow shortages whereas a bank loan might be more appropriate.  Check the cost of each option.  Even with the credit crunch, banks are still in the business of secured lending.  When they lend money, they want it back with interest and on time.  Some specialist banks will offer asset based funding:  this is a facility designed to provide working capital secured on the stock you have and debtors. 

Don’t hold any more stock/work in progress than necessary.

Whilst it may be painful to reduce the price of your stock to below cost, sometimes it is better to take a short term hit to your profit margin, clear dead stock quickly and use the cash to reinvest in more popular merchandise.

Outsource work rather than taken on or replace an employee that leaves. 

You can cease a short-term contract easier than making an employee’s position redundant.  Time is money and the time you need to spend training a new recruit may be money wasted when an outsourced expert could do the work quicker and more effectively.

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Keep staff up to date.

Gossip is far more painful to your business than letting your staff know there is trouble ahead.  Whilst you may think you are doing them a favour not telling, in reality most people are not stupid and if you don’t come clean they will spend more time gossiping or looking for another job than proactively contributing. 

It might be wise not to swan around in a brand new BMW when you are asking staff to forgo their bonus.  Even if the BMW is borrowed from your brother.

And so, more cash is better than less, cash now is better than cash tomorrow – collect as soon as possible, pay as late as possible.  Safe cash is better than risky cash – don’t be blinded by big numbers.  Finally, if you have less cash than your immediate needs, right now, check out the following UK Insolvency Helpline or talk to Dorothy Brown at Even Keel Financial

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