EFFECTIVE CASH FLOW MANAGEMENT AT YOUR FINGERTIPS


HOW many of the following questions can you answer positively? If the answer is very few, do you have an action plan to deal with the challenges... because you’ll certainly need one?  Are you sure you can pay wages and the PAYE next month?


 What happens if this month’s sales are down on expectation?


 Can you pay the VAT when it comes due at the end of next month?


 What happens if your largest customer delays payment by three weeks?


 If you use factoring or invoice discounting, do you have any idea one day to the next what funds are available for draw down, and is it costing you a fortune in bank charges because you draw down every day?


 Can you afford to take on a big new contract if you have to pay your suppliers before you get paid?


Effective and effi cient cash fl ow management is not


A Grand do rounds off Mark’s big year


just about managing crises, although that is certainly part of it. It is – or should be – at the core of successful business management. After all, it is well recognised that businesses growing fast out of recession often fail because they run out of cash – the fi nal scenario above. Yet I am constantly surprised at the lack of detailed cash fl ow management available in small and not-so-small businesses. Often this is because no-one is sure how to do it; they’re not comfortable using spreadsheets; or the accounting team (and the external advisers) are more interested (and fi nd it safer) in reporting the past than helping to chart the future. The tool I’ve used in virtually every business with which I have been involved over the years – and often taught people to use for themselves – is a spreadsheet which projects the cash fl ow for the next 13 weeks. And I think I can safely say that all the experienced FDs within EMC over the years have done likewise. Why 13 weeks? No real reason other than it includes the dreaded quarterly VAT payment or receipt. In some extreme cases I’ve run it on a daily basis. In others I’ve set it up for six months or longer.


Straightforward


SUSSEX county cricket coach Mark Davis’s testimonial year was rounded off in style with a celebrity-studded dinner at Brighton’s Grand Hotel. Testimonial year chairman and EMC CEO Nik Askaroff (standing far left, leaning on the shoulder of EMC colleague Ryan Smith)) is pictured with a group including Sussex cricketer Chris Nash, Grand Hotel general manager Andrew Mosley, James Shore of Close Asset Management, Leo Askaroff of Clarkson PLC, Walker Electrical’s Peter Walker, Alex Rimmer of Stephen Rimmer & Co and, rather outnumbered by the male company, Miss UK.


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It stands alone from the accounting system, and all it really does is project the bank statement into the future through intelligent guesswork. You know when standing orders or direct debits go out, and you know when pay day is. Other supplier payments are relatively straightforward, so the hardest bit is estimating when customers will pay. That involves understanding the historic patterns and projecting them into the future. The key point is that it is a live document


By Desmond High, EMC Kent director


which you update regularly, adding on a fresh week and dropping the past. So if you are faced with one of the problems suggested above, you can see the pressure points and take action. That might involve a concerted effort to collect cash from customers, or talking to the bank or key creditors. Most creditors get upset when they hear nothing and don’t get paid. On the other hand most are sympathetic to early discussions, and if you can also demonstrate that you have thought it through, they will usually work with you. After all, most businesses spend a huge amount of money on winning new custom. So why let it go through being bloody minded? You can download an example of the spreadsheet on our website at: www.emcltd.co.uk. You’ll fi nd it in the Services section. We will, of course, also be happy to set up the system for you at a fi xed price of £199 +VAT for the fi rst 10 people to respond. Otherwise the charge will be £399+VAT. This is still way below the value of the tool – ask your bank manager if you don’t believe me!


 Desmond High can be contacted at: desmond.high@emcltd.co.uk or by telephone on 01622 685734.


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