2 February 2011
Quintas Quarterly Newsletter - Spring 2011
It’s All About Your Brand!
Recent Investment Success
Changing times for the Golf Industry
Quintas Wealth Management, Director of Sales and Distribution, Nick Charalambous outlines how he and his team are planning to assist clients in 2011
Why Cash isn’t life or death – it’s more important than that.
Quintas Quarterly Economic Review
Abolition of Property Based Reliefs
Recent News and Appointments

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Why Cash isn’t life or death – it’s more important than that.
by Mark Ryan, Partner

The great Liverpool manager of the 1960’s/70’s Bill Shankly once said ‘Football isn't a matter of life or death, it's much more important than that‘. In my experience this is maybe a slight exaggeration when it comes to sport but not when you consider that Cash is the oxygen that enables a business to survive and prosper and is the primary indicator of business health. While a business can survive for a short time without sales or profits, without cash it will perish. For this reason the inflow and outflow of cash needs careful monitoring and management.

As we are all only too aware, the outflow part of cash flow is never a problem; money will always run out of your business or pocket easily. Keeping the money coming in on a regular, sustained basis is the tricky part of cash flow management.

Weathering the storm

One of the key factors in weathering any storm is knowing that it is coming and what direction it's moving. To do this you must keep an eye on the key performance indicators for your business and be aware of changing economic conditions. It is essential that as a part of your business plan you must prepare cash flow projections for the next year.

Can you pay your normal operating costs and expenses for at least three months from current cash? If so, that's good - and six months is even better. But if your cash balance cannot sustain you for three or more months, then you could be in serious trouble. Part of the problem may be poor management of cash flow. If unforeseen circumstances happened and your predicted cash flow dropped 25%, what could you do?

Many business owners /leaders mistakenly believe that a balanced budget and managing costs alone will ensure the financial health of an organization. An organization can still have a balanced budget, which indicates that it will break even or make a profit for the coming year, but without careful cashflow management it could still go out of business or have its reputation damaged if bills are not paid on time or, worse, if a payroll is missed.

Whether it is a multi-billion dollar empire, such as Apple Inc, or the small store on the street corner, cash is the lifeblood of the business.

Tips to improve Cashflow  

In order for a business to consistently meet its financial commitments it will need to properly manage its cash flow. Here are a few suggestions that we use for our own business and which we advise our clients on simple ways to save costs and improve cash flow.

1.   Know what your business’s burn rate is, this is the rate at which the business is consuming cash on a monthly basis.

2.   Identify the timing of major cash outflows within the business i.e. installment arrangements, annual revenue payment, capital repayments, payment plans to major suppliers etc.

3.   Prepare cashflow projections which are reviewed and assessed on a monthly basis. Monitor actual cashflow performance against projections and ensure all financial information is kept up to date to allow for quick informed decisions to be made.

4.   Have an efficient and effective credit control policy. Ensure your customers are aware of your credit policy and that you operate it so that you get the cash in.

5.   Free up cash by maintaining an appropriate level of stock.

6.   Preserve cash by maximizing credit terms from suppliers.

7.   Beware of short-term funding solutions which may cause high interest / funding costs i.e invoice discounting.

8.   Seek financial advice early if you anticipate pressure on the business cashflow – don’t stick your head in the sand!

9.   Approach your bank manager, before they approach you. Speak with your financial advisor, if cashflow problems are foreseen, take positive steps to manage the situation.

10. Increase payment options. Encourage customers to pay by banking on-line/standing order/direct debit. Offer a Credit card payment facility. Negotiate finance terms if you know the customer cannot pay your full debt in one payment.

11. Generate more sales - It is much easier to increase your sales from existing customers than it is to find new customers. Make your clients aware of the full range of services / products that you offer. The last thing you want is a customer telling you “I didn’t know you did that”.

12. Embrace Outsourcing- outsourcing non-core activities (payroll, accounting, IT, sales and marketing, delivery etc) will help the business save costs in areas of salaries, rent, IT, employment risks and training costs helping to boost its cash flow.

Cash really is 'The King'

Even during the boom times cash was king. During the last 24 months we have experienced a period of significant falls in incomes and profits and the access to cheap cash that was in the market has all but dried up. It is essential for all business owners who wish to survive and thrive in the future that they get their business fighting fit and set out realistic goals for the next 3 to 5 years of where they are going and how they will get there.

Many business people are taking a very short term view at the moment. “If I can make it through the next 6 months, I will be OK”. While it is important to manage the day to day activity of any business it is also vital that you stay focused on your longer term plans for the business. If you don’t, when we do come out of this recession, you won’t be ready to take advantage of the upturn.

To view Marks bio please click here.

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