Q&A: Improving cash flow and cutting costs
Article Date: Aug 17 2005Q: I’m looking at ways of improving my cash flow and cutting costs generally without upsetting my staff or suppliers. What ideas do you have?
Answered by Phil Verity, Mazars
Your aim should be to ensure that you are paid what is owed to you before you have to pay what you owe. You could start using a simple cash management system. Work out your daily cash balance (ask your bank for regular bank statements or consider switching to PC or internet banking). Sort out each week which customers you expect to pay you and which suppliers you would like to pay. Tick these off on a sheet and don’t pay out money until you have got it in. A simple cash system like this focuses your mind on chasing your debts.
When it comes to cutting costs, you want to look closely at all your customers and all your products. Check that the revenue from each of your products cover the direct costs and that each product makes a contribution to overheads. Work out which products are the most profitable and focus your activities on those. This could lead you to seeing how you might reduce your overheads.
When you review your customers, you might find that some customers are not profitable. I had one recently in my business. Twice before he had claimed that he had not received a product through the post and so he had ended up receiving more copies than he had paid for. I’ve just written to him telling him I won’t sell him any more of my products.
Phil Verity is a partner at Mazars, the international accounting and business advisory firm, and head of the mid corporate market business line. Phil works with a wide variety of entrepreneurial and owner-managed businesses, helping them tackle the challenges of growth and development. He frequently advises companies on issues such as business strategy, financial management and control, mergers and acquisitions, succession and overseas expansion.
As a business finance supplier we often hear the same story regarding peaks and troughs in cashflow. The difficulty is always caused by the gaps between busy and quiet periods compounded by late paying customers. Focusing on the credit collections as well as keeping overheads in check is paramount, however this does not help when the business gets so busy it has to buy in goods and services to meet demand, with a knock on effect on the available cashflow to meet the bills. A simple solution would be to open a Wageroller facility. What this service does is give your business credit on your wage bills over 2-month rolling periods to free up cashflow predicably. The online facilies are similar to online bank accounts that you self manage as needed, there are no fixed fees when the facility is unused and you only pay for the funds in use, early repayment is also penalty free. Better still it only requires a simple credit agreement rather than PG's or asset based security as with banks or factoring companies. The service is available to any business in any sector, of any age or size. Businesses already benefiting from the use of wageroller facilites range from SME's to PLC's, with several premier league football clubs in-between. You can find wageroller on any search engine and apply online directly. I hope this is help Lee Tumbridge
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