Managing cash flow in difficult times

Guy Rigby discusses managing cash flow in difficult times.

I own a small import-export art business in Cheltenham. Business is good despite the downturn, but I'm conscious this could change over the coming months. What are the main things I should be doing to manage my cash flow and safeguard my company?

Guy Rigby, head of entrepreneurs at accountants and investment management group Smith & Williamson, says:

The key point to remember is that businesses don't fail because of a short-term lack of profitability - they fail because they run out of cash. So your cash flow plans need to be realistic, with room to counter headwinds and unexpected variances. This means continually monitoring and forecasting your cash flow and managing your stock, supply chain and debtors to keep working capital requirements to a minimum. You could also consider credit insurance to remove the threat of bad debts.

Underperformance in terms of lower sales, higher costs or lower margins will adversely affect your cash flow, so consider the level of your overheads in good time. On the other hand, higher sales than forecast may seem like a good thing, but they can also increase working capital requirements and cause cash shortages. Therefore, as strange as it might sound, it is important not to ‘overtrade'.

Review your business model and establish whether you will require further funding down the line. If this has already been agreed, that's all well and good. Whatever happens, try to get the balance right between equity, long and short-term debt, and asset-based finance. Don't borrow short to invest long. Also, examine the opportunity for less obvious forms of finance, e.g. grants, tax credits or even stock finance from business angels.

Finally, and most importantly, if your business does start to fail, don't operate in a mirage of optimism. Acknowledge the difficulties and seek professional advice as soon as possible. Depending on the symptoms and the speed of diagnosis, advisers may be able to help.

For further information:

Guy Rigby, head of entrepreneurs
Tel 020 7131 8213
Email: guy.rigby@smith.williamson.co.uk

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Note to editor

Smith & Williamson is an independent professional and financial services group employing over 1,400 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. It operates from offices in London, Belfast, Bristol, Glasgow, Guildford, Maidstone, Salisbury, Southampton and Worcester. Nexia Smith & Williamson is the audit practice of Smith & Williamson and is an independent company.

Smith & Williamson Limited Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.

Nexia Smith & Williamson Audit Limited Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.