Brett Barton
Brett's recent articles
- Directors Urged To Protect Their Investments
2nd February - Will there be a double dip?
15th September - Is This The Beginning Of The End Of Business Rescue?
16th June
Cash is King
20th January 2011 16:16
In February 2009, during the depths of the recession, I wrote an article speaking about the difficulties that smaller businesses faced. The main issue that I was continually being asked about was how companies could obtain funding and to be honest, I’m not sure that it has got any easier in the last two years.
I recently came across an article produced by Lloyds TSB Bank which made for some very interesting reading. Some of the key facts of the article were that nearly a third (31 per cent) of small businesses in the West Midlands suffered cash flow problems in the second half of 2010 and 47 per cent of the companies surveyed blamed delayed payments from customers for putting pressure on their cash flow.
It would appear that in the absence of any support from the traditional sources of funding such as the main high street banks, it is evident from this survey that companies are looking at other methods to fund their trading activities, including increasing the time that it takes to pay their suppliers! Over the past two years it is not unusual to see a business’s debtor days increase from 60 days to anything up to 120 days.
As it is the start of a New Year, directors should use this time to conduct a mini review of the business and to plan what will happen during 2011.
• Prepare a cash flow forecast so that you are aware of what your immediate short term cash requirements are.
• Review your credit control process. Are your debtor days being extended? Have any of your customers exceeded their credit limit? Is your cash collection working effectively?
• Write to all your suppliers and review the pricing structure that they offer. Is there a new supplier who will provide more favourable terms?
Remember the old adage, “Cash is King”. Your company is not a high street bank; it therefore should not act as a financier to its customers. As the green shoots of recovery begin to flourish, you don’t want your business to be faced with the situation where you cannot fulfil a growing order book as there is no working capital available to buy materials!
