Cash is king, we know that but more so now. Five tips for proactive cash management

Over the last two months monitoring cash flow has been a top priority for most businesses. For most, this has been activity thrust upon them by the current situation. Even though the shock of lockdown is becoming a distant memory monitoring cash is still a vital activity and one that should be led by senior leaders/ owner-managers.

For many SME owner-managers, proactive and systematic cash management is not something done routinely. We know from the results of research that cash flow hiccups are often identified at the eleventh hour giving little time to identify and arrange a suitable funding solution.

“Instead of looking through the telescope the wrong way round business owners should be looking through it normally to spot cash challenges in the distance and give time to deal with them.”

Without cash a business is doomed and therefore its management should be the number one priority of every senior team or owner-manager.

Outlined below are five tips to help your business become more proactive around cash management.

Make cash management everybody’s priority

Communication is important. Inform senior managers why cash management is important. Let them see the plan, the challenges, risks of not being proactive and the numbers involved. Focusing the minds of leaders, senior managers and budget holders and asking them to communicate to their teams makes cash management an important task for everybody, part of every employees role. Communicating, top-down ensures there is no misinformation within the team and everybody knows how important a task it is.

Manage cash inflows

For most businesses that need to consider managing incoming cash, managing Aged Receivables is where the focus should be. Consider automating the routine day to day debt collection with an app like Chaser leaving your teams time free to focus on that stubborn debt.

Think too about how to make it easy for your customers to pay you. Adding payment links to digital invoices and collecting retainers by Direct Debit may speed up payment times too. Check out Xero support for how to do this to invoices in Xero.

Finally consider undertaking credit checks on all new major customers. This will help you evaluate the risk of non payment before you start to raise sales invoices but may also enable you to negotiate different payment terms.

Have you taken advantage of all government schemes?

There have been almost weekly announcements of support for businesses and you would have been forgiven for missing one of the non mainstream support packages.

Review the .gov website for details and follow them up.

Talk through cash flow shortfalls early

We all have people that support us when we need it. Whether that is an employee or your external accountant, talk to them about cash worries and challenges. Identify the challenge and find a solution to deal with it. For help and assistance with managing cash and finding a solution talk to either Richard Hallsworth, Stephanie Smith or Steve Robinson, our funding specialists.

Revisit your cash flows regularly

This is a vital activity. Amend cash flow models and forecasts as things become more certain. If you are establishing plans to bring income forward or steepen the cash coming in curve on the way out of lockdown make amendments showing the impact of each measure.

Add in changes to government backed support schemes as they are secured and update predicted cash coming into the business when you speak to debtors.

Technology

There are lots of examples of apps that pull data from your accounting software but as yet I am to be convinced on how accurate a picture they present. For now in our business we still use a spreadsheet to forecast cash over the current month and then the next 90 days. This is a daily summary and reconciled each day to the bank.

Final thoughts 

The management of cash flow has never been so important as it is now. Understanding where any gaps might be, how deep they may become and the impact on the position of the business is vital if long term health is to be preserved.

Leading from the front with a clear and proactive message on the importance of good cash management should be a top priority in any sMe whilst owner managers in Smes should focus on cash and ensure they understand the position themselves.


Moving your exit “V” curve, let’s revisit our exit strategies

The impact on the economy of lock down has been significant, possibly the most significant since the 1700’s. We’re told that the economy will bounce back and that the shape of the curve will be a “V” shape. 

Whilst the inward shape of the curve in terms of the gradient is now known the exit curve is not. Clearly the bounce back is not going to be as steep and probably different for each industry (and business within) as restrictions are relaxed. 

In order to understand your cash requirements until restrictions are relaxed and through the initial opening you should be putting a cash flow forecast together and updating it on a weekly basis. 

But that’s operational and I want to talk about strategy. 

Let’s say that based on government advice and modelling you have forecast your outward “V” curve, your anticipated cash inflow from sales. On the graph below this is the red curve. It’s your base income forecast. 

My challenge to clients is to now identify ways you can steepen the gradient (i.e. increase the pace of recovery – green line) or move it forward (i.e. create income ahead of your base forecast – blue line). 

One step to the left!

I’ve talked to dozens of small business owners who are currently closed but are finding legal ways to create income streams, such as cafe’s selling take out pizza or meals etc. They are moving their “V” curve, creating income ahead of where they might expect to and getting ahead of their base forecast.

The blue curve is the effect of this. There will be new ways of generating income by either delivering new products and services or delivering existing products and services in new ways whilst restrictions are in place.

Keep running up that hill

I’ve talked to other business owners who are thinking of ways to reopen with a bang, ensuring that when they do open income is maximised in whatever way they can. One of my clients, a small hairdressing business, is actively starting to fill a virtual appointment book ensuring that their clients have a place booked for when they reopen and guaranteeing their income. They are not waiting for customers to come to them!

The green curve is the effect of this. There will be ways of selling more to existing customers or attracting new customers.

A word of caution 

The one vital boundary to bare in mind when starting to identify ideas is trust. Being responsible, in terms of applying government guidance will be a vital part of long term sustainability. Businesses that flout rules and guidance, in their “customers minds”, may be dealt a significant blow when those customers come to make their next purchasing decision and vote with their feet.

So in summary, strategic thinking around your exit “V” curve could be a way of finding your way through and out of restrictions maximising revenue and cash at this important time but also identifying new ways to generate sustainability.

If you’d like to talk this through please contact me (Richard Hallsworth) on 01522 81 5100 who would be happy to have a virtual coffee with you.


Top Tips for making a CBILS application

With the shock and emotion of this crisis behind us we’ve been talking to a lot of business owners about cash and in particular how to fill gaps in cash flow.

Most business owners are taking advantage of the various measures and schemes put in place to support them. But what’s next ?

For most a dip in liquidity will need to be funded by a cash injection. Whilst a small number of businesses may be eligible for a quasi equity loan the majority will turn to the governments’ flagship scheme CBILS (Coronavirus Business Interruption Loan Scheme).

For a recap on the scheme please read our guide and initial thoughts, here.

Here’s the problem though…

On the 15 April The Guardian reported that 6,020 loans had been issued under CBILS worth £1.1bn. A week later according to UK Finance a further 9,000 applications had been approved worth a another £1.45bn. Whilst this is great news for those accessing funding there were according to the Guardian (at 15 April) more than 300,000 informal inquiries, seeking out more information. This isn’t a surprise either since most business owners are currently working their way through cash flow models to identify how much funding might be needed to survive.  The majority of applications will be made in the weeks ahead.

At least 8/10 business owners that I am speaking to are reporting a significant “cash drain” that will need plugging with cash through CBILS.

The problem is obvious. Whilst the banks are doing a great job in dealing with applications as CBI economist Rain Newton-Smith said “…while the pace is picking up, many firms are still missing out. More loans must get out the door faster for the businesses facing distress, especially smaller businesses.”

We need to find a faster way for small businesses to access cash

It was therefore great to hear the announcement by the British Business Bank on 17 April that Funding Circle had been accredited under CBILS. As Funding Circle put it themselves on their website they are “Revolutionising a broken system”. They do this by deploying technology into the lending process meaning that they can process applications quickly through their platform.  Maybe this kind of approach was what Rain Newton-Smith meant when he said …

“Finding quicker and simpler routes for smaller firms to access cash, and extending repayment schedules to encourage more businesses to take them up are two ways that could make a difference.”

I was therefore surprised to hear local Relationship Managers caution small businesses about Funding Circle at a recent event. Whilst I appreciate that Funding Circle’s debt collection process could be described as “proactive” clients with Funding Circle loans that have needed to reschedule debt have always been able to.

That aside though if CBILS is to be successful banks need to accept that they need some help processing applications from smaller businesses and that through Funding Circle there is a way to achieve this leaving them available to deal with more complex funding requests.

Top tips if you are thinking about funding through CBILS

Be prepared

It might be obvious, but we think that well thought through and structured applications will be seen in a more positive light by the bank/ lender than general conversations around support.

Lenders will assess applications in the same way they always have (because they will use the same process, systems and people) and therefore management accounts, a business plan and forecasts will be essential parts of the application. You might also keep an analysis of creditors, debtors and time to pay arrangements with HM Revenue & Customs (HMRC).

If you are making a Funding Circle application you will also need copy bank statements for the last six months as detailed below:-

Impact of the Coronavirus Crisis

In your narrative you should be ready to outline the impact the coronavirus crisis has had on your business dealing with facts and figures within the narrative. It will be vital to ensure the lender understands the impact on the business the crisis has had.

Structure your argument

In your business plan, you should focus on the strength of the business before the crisis, its trading performance and ability to generate cash.

You should also outline the path back to this position making clear the steps you are taking and the time frames you are working to.

From early discussions with local Relationship Managers across the four main high street banks each lender is adopting a slightly different interpretation of what constitutes “viable” and whilst I have sympathy, given the constant changing CJRS guidance, it’s not helpful when you are trying to write an application for funding. Your narrative here needs to focus on the success you had prior to the crisis and why you were viable and sustainable before.

In their appraisal of the business plan, lenders will want to understand management capability and whether there are any long-term implications of the economic fallout on the business or industry it operates in.

Go for the maximum amount of funding

CBILS  is not very flexible in how you draw down cash. We’ve run a few cash flow models that show two peaks where funding is required. Ideally the scheme would offer an overdraft now to cover the short term variability in cash and then a medium to long term loan covering off (1) the debt pile built up over lock down, (2) the costs of re-opening and (3) the losses that may be encountered as sales are developed after fully re-opening.

It doesn’t allow for this flexibility though so you need to make one application that covers both and then repay what you don’t use. Not ideal but with interest payments being covered by the Government for twelve months and no early repayment penalties the scheme is flexible enough for you to do this.

The CIBLS is going to be an important measure for any business looking to plot a course to safety out of the current crisis. Key to a good application will be the narrative and cash flow forecasts. If you have any doubts over these or would like our assistance in generating them please contact funding specialist Stephanie Smith or Director Richard Hallsworth on 01522 81 5100. 


Tighten your belts the road ahead may be bumpy.

Amid the news of the continued spread of the coronavirus in the UK, this week saw an unprecedented range of intervention in the economy by the Government, HM Revenue and Customs and the Bank of England.

First the Bank of England cut interest rates by 0.5%, the first emergency cut since 2008 with Mark Carney commenting that “… the UK [economy] could shrink in the coming months … the direction is clear, though the orders of magnitude are still to be determined.” The bank also announced details of a £100bn scheme to help households and businesses. The simply named “Term Funding scheme with additional incentives for small and medium-sized Enterprises” or “TFSME” for short aims to ensure that the cut in rate benefits businesses. It works by incentivising banks to lend to businesses by allowing them to access funds at low rates of interest through the scheme. Richard Hallsworth (Director at Nicholsons) commented “There will still be the usual credit underwriting process to go through and therefore it’s vital that there is a well thought through and clear reason for the funding request but like the schemes that were announced after the financial crisis in 2008 this is positive news for SME’s facing cash flow gaps.”

This emergency intervention was followed by a series of measures from new Chancellor, Rishi Sunak, designed to cushion the impact on the economy. Measures included a business rates relief scheme, sick pay support, devolved local authority hardship fund, temporary loan scheme for businesses hit by the virus, increasing of the employee allowance to £4,000 and a £3,000 cash giveaway for small businesses that pay no rates. Of the business rates holiday Richard said “Business rates are a hidden tax for many small businesses and this rates holiday announced yesterday will certainly help those struggling because of the downturn in the economy whilst the cash grant of £3,000 for those that don’t pay rates will provide an instant boost.”

Finally, we heard from HM Revenue & Customs that they are ready to help with thousands of extra officers waiting to help set up time to pay agreements. A new helpline with “Up to 2,000 experienced call handlers is available to support businesses and individuals when needed.” According to the .gov website.

Richard said.  “All of this support is the clearest indication yet that the effects of Coronavirus might be with us for many months after the pandemic comes under control.”

Funding specialist at Nicholsons Stephanie Smith said “Whilst these announcements are positive, I’m hearing news from the funding and insolvency sectors that concerns me. Corporate insolvency numbers are up, debtor days are stretching, and some lenders are tightening credit policy making it more difficult for businesses in certain sectors such as travel and transport, supply chain and freight and food and hospitality to access cash.”

It’s clear that we are going to go through a period of economic turbulence and as business owners it’s vital that we take action to protect our businesses. So, we caught up with our team of business advisors to get some tips to help.

  1. Understand your cash position. What cash have you got now and how much do you think you will have 30 days, 60 days and 90 days?
  2. Think about the impact a reduction in activity could have on your business. This could be because of a drop in turnover, lack of products or raw materials or because employees are away from the business.
  3. Review your debtors, stock and creditors to see what cash you can squeeze from them. This is a free source of cash and needs to be working for you.
  4. Identify whether you’ve got a gap in cash. Do your cash requirements exceed cash availability and when?
  5. Consider what source of funds you might be able to access and plan whether there is sufficient cash available to plug the gap.

Richard concluded by saying “The interventions announced are significant and should make us (a) pause and consider what impact coronavirus could have on our businesses and (b) act now by planning, because the signs are there is going to be a shock of some kind.”

If you would like help with any of the points outlined above or are already feeling the pressure of a tightening cash flow and would like to discuss it with one of our Business Advisors, please call us on 01522 815100.