DYNAMIC CASHFLOW MANAGEMENT

Money is vital to any business it is the life blood that keeps it alive.

When I visit clients to conduct a free business diagnostic I regularly hear the same comments:

‘We are regularly exceeding our overdraft’!

‘We never seem to have enough money!’

‘We always have trouble getting paid.’

The starting point in putting things right is normally to explain this old business maxim which is as still true today as when it was first made:

‘Turnover is vanity, Profit is sanity, and Cash is reality’.

Unfortunately many businesses do not remember this and often chase turnover to solve the cashflow problem, after all more sales = more cash right! Sadly this is wrong and in a lot of cases businesses pays the ultimate price, bankruptcy. Businesses are commonly Over Trading or Trading Insolvently without even knowing it.

Firstly does the business have Sales, Cashflow and Profit & Loss forecasts, (they must include columns for forecast and actual, most that I see don’t).

My next move is to check that business has costed and priced their products or services correctly and are charging an appropriate price.

Thirdly do they specify their trading terms in writing and enforce them.

After that what are their debtor days, (how long are they waiting to get paid) and examine ways to improve their credit control.

Of course businesses are not always financed to the appropriate level, with enough money to fund their survival or stage of growth and maximising the use of the right type of finance is important.

The most common source of funding is the bank, however businesses often utilise the bank products and services in the wrong way.
For instance let’s say that a business has an agreed overdraft limit of £5,000 but the business constantly operates their account with the overdraft fluctuating from £3,500 to £5,000 but it never drops below £3,500.
The business should consider changing the £3,500 solidified debt into a commercial loan and then change the overdraft to cover the fluctuating debt of £1,500. This could dramatically save money in interest charges. Additionally it will secure the bank lending so that a change of circumstances or change of bank manager does not result in the risk that the overdraft could be cut impacting seriously on the business.

There are other ways to fund cashflow.

Firstly examine if the terms of trade with your suppliers can be extended. At the beginning businesses are usually paying on Pro-forma (payment with order or cash on delivery, C.O.D.). Once some trading history has been built up it is usually possible to agree improved terms ie 30 days. Sometimes this can be increased to a longer period dependent on the industry norms. But remember just simply taking longer to pay your supplier can damage your relationship or even affect your credit history and rating when you try to get other products or services on account. And you never know when you will need a favour from your supplier.

The source of funding that should always be pursued is savings or family & friends but make sure that there is an agreement drawn up to protect all parties.

Invoice Discounting
This is also known as ‘factoring.’ Put simply the finance company inspect your books and agree to pay you a percentage of the value of invoices that you send to your regular clients at the time you issue them and pay most of the rest of the value when they get paid.
They can either run your debtor book for you chasing the payments or you can be responsible for chasing payments. Obviously in the first case it relives you from that time consuming and some times uncomfortable chore but the cost are higher and you may feel that your clients might not like someone with whom they do not have a business relationship chasing them form money.

Asset Based Lending
This is a similar form of financing and the finance company agree to provide you with a percentage of the value of your sales even before you invoice, this is especially helpful to businesses who do not invoice until the end of the project. The facility allows manufacturing businesses or other industries like builders to fund the cost of materials and labour or other processes which extend the time before the business gets paid. Again the finance company inspect your books and agree to pay you a percentage of the value of the sales. Debts can be secured against stock, machinery, premises, invoices and even brands

E-mail me today to receive a Finance Options Table showing various funding options, costs and initial guidance to help you to select the best option for your situation.

These issues are just the starting point.

There are other financial issues for businesses, Commercial Loans, decisions about how best to buy an asset (Leasing Vs Purchasing).

Then the thorny subjects of equity investment in the business, capital purchases, bringing in outside investors etc.

Those are all subjects for another day so watch out for the next finance posting.

Code for Leasing Business Premises

A new code of conduct has been developed which aims to promote fairness in commercial leases, and recognises a need to increase awareness of property issues, especially among small businesses, ensuring that occupiers of business premises have the information necessary to negotiate the best deal available to them.

‘The Code for Leasing Business Premises in England and Wales 2007’ is the result of collaboration between commercial property professionals and industry bodies representing both owners (Landlords) and occupiers (Tenants).

The Code is voluntary so occupiers should be aware that not all Landlords will choose to offer Code-compliant leases. The Government, however, takes a keen interest in ensuring the property industry complies with this voluntary Code.
The Occupier Guide is not a substitute for professional advice and tenants are encouraged to seek professional advice as soon as possible.

The Code consists of three parts:

10 point requirements for landlords in order for their lease to be Code-compliant; click here to receive the document

A guide for occupiers, explaining terms and providing helpful tips. click here to receive the document

A model Heads of Terms (which can be completed electronically and downloaded). click here to receive the document

Click here to receive the entire code (PDF 1.3MB).

Remember even after you have reviewed these documents or completed the Draft Heads of Terms it is important to seek professional advice regarding you individual situation!

The Code for Leasing Business Premises is endorsed by:
The Association Of British Insurers,
British Council for Offices,
British Retail Consortium,
Confederation of British Industry,
Communities and Local Government,
British Property Federation,
CoreNet Global,
The Forum of Private Business,
Federation of Small Businesses,
the Welsh Assembly Government,
Investment Property Forum,
The Law Society of England and Wales,
The Royal Institution of Chartered Surveyors.

DISCLAIMER - PLEASE NOTE: The ideas and information shared with you in this email are intended to inform rather than advise. individual circumstances do vary it is important that consult your adviser before implementation. If you do or do not take action as a result of reading this information, before taking professional advice we will accept no responsibility for any financial loss incurred.

Dynamic Business Strategies Ltd

The Counting House

14 Walford Place

Chelmsford

Essex

CM2 6PG

Registered in England. Reg No.5418835
Tel: 07917 446068

E-Mail: info@dynamicbusinessstrategies.co.uk

Website: www.dynamicbusinessstrategies.co.uk