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.


COVID-19 Our advice for recovering & rebuilding

Over the last few weeks we’ve been working hard to help clients secure their businesses and ensure they have sufficient cash flow to survive to the end of June. Whilst some of this work will continue with some clients in acute financial distress we are now starting to think about how we help clients recover and rebuild.

These pages are designed to provide some advice in this respect so please read our thoughts… coming soon.