Every business I’ve seen or talked to in the last few weeks now believes the recession is over, and that growth is definitely back on the agenda. And I mean real growth; business owners are taking on staff, talking of expansion, investing in new equipment, and reporting that sales enquiries and orders are on the up.
Short Memories?
BUT I’m also seeing evidence that short memories abound and businesses are already forgetting some of the basics about cashflow; the things that had to be tightly controlled in the dark days. Funny how feeling optimistic again can lead to the loosening of those purse strings, at the very time when cash management should be high on everyone’s list.
So I wanted to remind you of the Cashflow Red Flags that you need to be on the lookout for. Make sure your weekly financial reporting is covering these crucially important areas. Remember more businesses fail in a period of growth than in a recession, because GROWTH EATS CASH. Yes I know I keep banging on about it, but it’s true!
1) The obvious one – is cash tight? If it is, you really need to get to the bottom of why that is. As sales pick up, contrary to belief, cashflow will only get worse.
2) Are you hitting your bank facility limit on a regular basis?
3) Debtors – make sure you see your detailed debtor report every week – you’re looking for customers who are going over terms. Make sure your credit control is consistent and rigorous. Put customers on stop if they haven’t paid you.
4) Creditors – make sure you’re in the loop and know if suppliers are chasing for invoices that you can’t pay. Is creditor pressure building up? Make sure you see your creditors report every week too.
5) HMRC – can you pay your PAYE, VAT and corporation tax on time? If not you’re probably propping up your business with their money. A sure sign that something is going wrong.
6) Stock – if you’re buying more stock to supply increasing sales then cashflow is likely to tighten. You need to regularly know what your current stock levels are. Stock needs financing and you need to make sure you’re got enough working capital to cover it.
7) Buying new machinery? Be absolutely sure you’ve got the spare cashflow to cover any deposits and the upfront VAT.
If you’re finding cash is getting tight, or are worried it might, you need to do these 2 things now:
1) Prepare a cashflow forecast – you need a 13 week rolling cashflow to see where the pinch points are.
2) Talk to the bank early, be honest with them and ask for help before you need it.
Over the next few weeks I’m going to be investigating crowd funding; finding out the pros and cons of this fast growing source of funding, as well as doing my quarterly review asking how the bank managers in the region are faring and what changes they’re seeing in the market place. So stay tuned for the next exciting instalments of the F Word blog!
And I’m always looking to reach new people, spread the financial gospel so to speak. So if you find my blog useful, please send it on to anyone you think might like it too.