Many companies experience good and bad cashflow at times. Waiting to get paid by customers or clients can stretch your cashflow and cause problems with your suppliers, HMRC or even wages. Customers delaying orders or cancellation can mean that your company suddenly can’t pay PAYE, VAT or suppliers
We have produced hundreds of guides for business people on this website, since 1999 but probably this is one of the most important guides for a problem that affects all companies large or small.
What options do I have if my company has a cashflow problem? Will we go bust if we don’t pay creditors?
Whatever the reasons for your business cashflow problems, here are our top ten tips for company directors to help you regain control.
Know your cashflow inside out. Why not download our daily cashflow template
Before you can take action you need to know precisely what the current up to date position is. There is no pint in waiting to see what the accountant says happened 9 months ago! We know you’re busy in sales, marketing, making, delivering and “do not have time for accounts and cashflow”. Did you know legally YOU as the responsible company director must ensure you know what is happening financially in the company? To do that you need to be up to date. You can do this DAILY with our free cashflow model.
Make sure you know all your fixed and varying outgoings and plan your incoming revenue to see where savings or improvements can be made. A straightforward strategy of upselling complementary products or services alongside your main offering could have a significant effect on cash coming in.
Build a daily or weekly cashflow and soon you will be in control of the incomings and outgoings. Without this you are driving with a blindfold. Update every day by ensuring you put in cash received and payments that have gone out as per your plan. If the cashflow shows you have a “hole” ahead, get help from turnaround advisors like me. If you see a problem coming at the end of a month call 0800 9700539 now - not when you can’t pay VAT, cannot pay VAT or wages
Anybody can cut costs but plan carefully so you do not impact on the ability to sell your goods or services. When you build your daily cashflow above in tip one (LINK), you should question every expense/ cost line. Do you still need all those services or costs, like photocopiers, offices, people, cars?
Look carefully at people costs this is usually the largest expense; are employees getting too much overtime? Does the business need to be open all hours? Turn down the heating! Turn up the pressure on suppliers like utilities - by regularly moving to the best tariffs and deals may seem “small beer”, but significant savings can be made in this way. Providers will not want to lose your business, and the threat alone could be enough for them to offer a better supply deal that allows you to save money.
Raise prices or margins – don’t work for your customers, work for you!
Raising prices may not be something that you think you can do. My argument is that you must must consider it when meeting new clients or customers.
If, for example, you sell a product or service for £1 excluding VAT and you make a 30% margin that’s ok. What if you sold it for £1.05? Simply by raising prices a smidgeon by 5% you actually increase gross profits by 16.67%.
So, now if your sales are £1m a year and current gross profit is £300,000 how would you like an extra £50,000 margin?£50,000 is a good extra profit to make isn’t it? And just by raising prices 5%. Very few companies have such price sensitive customers that 5% would lose a loyal customer?
The converse is true too! If you cut your sales price to win an order by ONLY 10% from £1 to 90p then you cut your gross margin by a massive 33.33%. over a year that’s a gross profit of £100,000 less. And obviously a huge difference to your cashflow.
Try to get a better price for your suppliers (who should be pushing their prices up not down!) and by negotiating better deals with suppliers this will also help to improve gross profit margins.
For example, utilities suppliers or ITC suppliers. Ask for their best tariffs and deals - significant savings can be made in this way. Providers will not want to lose your business, and the threat alone could be enough for them to offer a better deal that allows you to save money on a monthly basis.
Ensure that you have a good invoicing system & invoice daily if possible.
As a turnaround advisor to SME company directors I regular hear something that terrifies me:
“Keith we only invoice once a month or a week when the accounts girl comes in”
That’s absolute rubbish! You have made the product or delivered service, so deliver the invoice as soon as you can. The quicker you do the quicker your company will get paid!"
If you are using factoring or invoice financing you can load invoices every day using simple accounting systems on your mobile phone. Then draw down cash regularly. Don’t wait 3 weeks to bill, because the customer may see that and think “well we will wait 3 months to pay”!
Using systems like Quick Books, MYOB Xero and Sage you will be able to see who owes money to the company. One day after the customer is due to pay, send a reminder email, letter or call or set the system up to do that for you.
Then phone every day until you get paid. ITS YOUR COMPANY’S MONEY. Your accounting system can automate reminders for this. Or simply set a reminder on your phone diary system.
Don’t let red letters grow and multiply. Act and communicate with suppliers.
The regular use of your cash flow forecast, discussed above, will show in advance when your company can afford to pay bills. If you have to keep moving payment dates out, then red letters and supply problems will occur.
Offer to pay something on account until you know the whole bill can be paid. Look if there are many red letters and telephone calls demanding payment the company is probably already insolvent and you must act properly now or face personal liability. Call me now on 07 9976554433
We can assist with discussion with creditors, suppliers HMRC and landlords, but guess what we need a cashflow model to see how and when these bills can be paid! See tip 1.
The company may need to look at more formal time to pay arrangements - we at KSA Group / CompanyRescue are experts who have helped defer many millions of tax and creditor payments for clients who are continuing to trade today. Or it may need a CVA or pre pack administration see below.
Consider raising new working capital from alternative funding options
There are now over 400 companies providing finance to SME companies in the UK. Some good examples of this are invoice finance, cashflow loans or new banking facilities. Why rely upon the old fashioned bank?
See our finance guides here. For example, factoring or invoice financing releases a cash lump sum back into the business, and can quickly improve your overall cash position. An additional benefit is that as your sales increase, so does your line of credit. But REMEMBER INVOICE DAILY!
The factoring company takes control of your sales ledger, making around 85% of the value of each invoice available to you immediately, with the remaining balance being paid once they have collected the money from your client or customer. You pay fees and charges to the factor for this facility. Loans from companies like Funding Circle, Ratesetter, Iwoca to name just 3 can bridge short term cashflow gaps with long term loans.
So if the Cashflow hole is too large and the business is going to run out of cash? Get Professional turnaround help SOONER NOT LATER.
Suppliers and creditors are often open to time to pay negotiations if they see that you are serious about making your repayments in full. They may agree to extend your terms over a longer period of time to provide a little breathing space. Or more serious forms of restructure may be required. As experts this is our day job!
KSA/ CompanyRescue can help negotiate deals with creditors and suppliers but we do need to believe the business is viable. To work out the best way forward we can offer a FREE consultation online, on the phone or face to face at your premises or our offices across the UK.
Our friendly experts will work out a strategy with you and report this to you I writing. We will also take you through ALL AVAILABLE OPTIONS before making a recommendation. We are legally required to do this by or regulators. And the Government. There is no initial fee.
So you get top quality and accurate advice free initially. All future work is set out and a fee agree in advance of work commencing.
Consider a Company Voluntary Arrangement (CVA)
A CVA is a hugely powerful tool to right size costs, cut employment costs, exit difficult leases and contracts, and with strong guidance and your good management it may make the business fit again. As the UK’s leading CVA experts we have written the unique 120 page CVA Experts Guide .
9. What if I need business or accounting help
Need help with accounting, cashflow forecasting, legal matters. Get our indispensable free guide to running, growing or restructuring your company LINK TO WDG2:
10 The TOP TIP OF THEM ALL?
Don’t wait until it is too late to get professional help. Don’t wait until creditors “go legal” with CCJ’s Petitions or debt collectors. Call now for free initial advice you have nothing to lose as our service can be entirely discrete and you have much to gain – we may just save your company!Bottom of Form
Keith Steven Managing Director and Turnaround Practitioner
Categories: Implications for Directors