Bevis Wright Accountant

Striding over the hill and hitting the downward slopes to the chilly valleys of winter, 2019 Phase 2 is upon us as we edge ever closer to the end of the year.

But the challenge for this week is Mindset. What path has it followed so far, and which approach will it take on the final straight?  How have results compared to expectations? Was this the year we doubled down on protecting our core business, consolidating our position in the market and holding our fists to the headwinds of Brexit? Was it the year to run harder-faster-together, to break new ground, for each to lend an extra shoulder to build speed on the flywheel, creating reservoirs of momentum with which to tackle future pressures

Whichever path you have chosen to follow (or been led down!) in the first six months, what resulting trail has been forged by your Cashflow?

According to statistics, cashflow difficulties are the main issue facing SME’s in today’s business climate, with over 1/3 unable to pay debts due to lack of cash in the bank.  The main reason given for this is late payments from customers.  In the last year alone, small businesses waited on average 72 days for payment, compared to 31 days for larger companies! 

The first summit of cashflow course correction is debtors. It is vital to have a clear process (this means written/typed onto a document and discussed with the person responsible!) for debtor collection, including at which point debts are referred to a legal procedure for enforcement of payment.  Take the emotion of who you are dealing with out of the question and look instead at the cash that is not in your bank account, but in theirs.

And if the money isn’t in their account either?  This is even more a cause for concern, particularly as over 36% of businesses do not credit check ANY customers!  This should be the number one preventative step in dealing with enterprises that may never have any interest in paying for your goods/services.  The second step is debtor insurance.  Using debtor insurance to cover particularly large debtors can provide the security required in case they do not pay.  Use caution however, as we have witnessed first-hand, insurers pulling out on cover of large debtors at the very last minute, costing businesses vast sums of money.

But what if my debtors are under control and I am still short of cash? Summit 2 – investment.  What investment have you been making into your business that has been swallowing cash? Perhaps you have new machinery, new staff or even new premises?  Have you had conversations with your financial advisers or accountants about the best treatment of this?

The government is constantly banging the drum for investment and hence likes to show they have schemes to help businesses maximise what they invest.  Whether it is tax allowances, relief for expenditure on Research and Development or reducing the corporation tax rate, ensure you are dealing with suitably competent advisers who can instruct on best practices for maximising the benefits of these schemes. 

Another incentive – Grants.  When the chancellor stands up and says something along the lines of “we’re going to invest £100m in this industry over the next three years,” he actually means it!  Many companies miss out on local government grant schemes just because they have never heard of them!  Look at your local government website and peruse their Business Support section.  We have seen very large grants for projects, particularly premises alterations/relocation (especially when this results in the employment of new people) and new capital equipment investment.

Finally, the 3rd crowning pinnacle is look ahead.  We can’t say which direction the next surprise storm could come from, but we can say for sure that businesses with cash in the bank are better steeled to survive the challenges.  But there’s only one way to securely get from cash struggles to cash safety and that’s forecasting.  Both weekly and monthly forecasts are key to knowing whether there is money to pay all of our suppliers as necessary, what the general trend/seasonality of cashflow is and the tweaks required to make our forecast upward facing, in order to return to the path of financial security.