For many clients unexpected changes in their business or the economy or sometimes sustained growth can cause cashflow issues.
When this happens most people will think about extra financing or an increase in overdraft facilities as a starting point but this can often take a while to get into place due to the information that a bank or funder may ask for. Typically they will ask for accounts, management accounts, cashflow projections and very often personal guarantees to be put into place.
Part of the process of putting these together can be useful in looking at costs in certain areas and the timings of the main events in your business. It may be worth getting someone from outside of the business to look over these, question the assumptions and give you an idea about corporation tax etc to make sure that everything is included.
If the cashflow issue is unlikely to be short term then it is often worth the effort to get this information together.
However some people would rather try to get things under control themselves first. There are several things that can be looked at.
Stock is an area that can absorb cash and if the stock turnaround isn’t as expected it may be that this is the first area to look at – to stop buying extra stock and perhaps make a conscious effort to shift slow moving stock to turn it into cash
Do your customers pay you on time? If you are busy trying to fulfil orders you may not have the time you’d like for credit control. It is worth some time to look at who isn’t paying within your agreed terms and to talk to them to try to resolve this situation. It may also be worth putting credit limits into place and asking for deposits or some of the payment upfront if you have repeat offenders.
What are your supplier terms? If they are asking you to settle their invoice before you can chase in the money from your customers then again it may be worth a conversation with them to rectify this. Bank charges for going over an overdraft or for direct debits bouncing are only adding to your cashflow worries and if it’s timing that is causing this then it is definitely worth spending part of your day on this.
Lastly if the business owner is able to loan the company money to help them through this period then interest can be charged on the loan which can be tax free