MANAGING CASH FLOW ALL THE TIME AND IN CHALLENGING TIMES

MONDAY 30 MARCH

When companies need advice or want investment, my first request is always: show me your finances and management accounts. Followed by that, I need to know what your cash position is today, what it will be in 6 months and what it will be in 12 months. If I don’t get the documentation, or a clear answer I ask for, that inevitably tells me that cash flow is not under control.

Regardless of whether the economy is thriving or on in a downturn, management of cash flow doesn’t really change, although the latter may leave you with less options to reach out to.

I could write about this subject all day long, but time is of the essence here, and I am sure you don’t want to sit through pages of copy. So feel free to reach out to me and ask for more detail.

Getting straight to the point:-

Put finances at the heart of the company – If you have ever been a project manager then this is your project. I have always been of the opinion that it was the extension of my own finances and if the company doesn’t get paid, then my staff might not and I certainly won’t.

And my cash position today is? If I asked what was going in and out of your personal bank account monthly you probably would know. Do the same for your business account.

Close cash – I have been telling founders I am involved with to get rounds closed in 2019. Some did, some didn’t. Remember that 100k investment by an angel today, might be only worth 50k in 6 months time if valuations go down so you might have to strike a better deal than you were offering in February 2020. Look at bank loan options as well and consider that equity raise may not be an option for some time or may become more expensive.

Credit control – I am great believer you can be aggressive on credit control whilst also having a good customer relationship. After all this is business, it’s not personal. Make sure you have clear processes internally. Too many companies like to stick their heads in the ground when it comes to chasing money.

Early payment and terms – Be clear what your customers’ terms for payments are, dates, milestones, sign off. What day of the month they need invoices for at larger public sector clients.

Monthly management accounts – I meet so many companies, even with very large turnovers that cannot produce management accounts once, let alone monthly. Can not reinforce enough that if you and the board are not going through these monthly, then it’s going to be a rollercoaster for a few years. Get the CFO to put a comment into the CEO report monthly.

Get someone in control of Finances – So I used to view CFOs and FCs as a complete pain in the neck, blocking what I really wanted to do. Actually I was wrong. They make you a slave to the £. Ok, so you don’t maybe need to run out and hire a full-time CFO, but find a finance controller or similar who gets your accounts pulled together.

Increasing sales – Sounds obvious but get those sales increased. Just be careful not to impact your cash flow in a negative way by increasing sales.

Invoice quickly – Do it today. This is your cash for your business. If you leave it a week and backdate the invoice point, it will most likely get ignored and given a date by your customer on the day they received it.

Be clear on the paperwork – Your customers’ terms and expectations are almost as important as your own in terms of a smooth path to getting paid. Don’t just assume firing an invoice over means payment especially if, for example, your client likes to sign work off.

Build a relationship with debtors – Get to know the finance team at your clients. Trust me, the one who shouts the loudest is usually the one who gets paid. Build up trust with each other and good communication lines.

Don’t focus on profit, focus on cash flow – It’s no good having mega profit on deals, if you have no cash in the bank. If it takes 3 months to get paid, you will go bust.

“Nice-to-have” spend – I often hear “we are streamlined on burn rate”. Guess what, you are not. Look at spend again and maybe again. You will have nice-to-haves.

Business review – Do you know your business end to end? Review as a team. Does your business need to operate in a different way with the current climate and how does that affect cash flow.

Client is king – Two things. Focus on the clients you have, in fact, go as far as doing a risk profile against all your clients in terms of keeping them. Also don’t cut costs so much that your clients get a negative service.

Prepare for a long period of time – A wake-up call. What we are going through right now could be years. And there is a high chance that things will be tough for that long. Prepare that worse case contingency plan and keep it reviewed at board level. Plus the dip, might have an even worse dip to come.

Clients are doing the same as you – So your clients are looking at saving cash, getting paid early and all the other things we have covered. This might mean they view purchasing services or goods from your company in a different way.

Communicate with shareholders – Please, please, please send a version of your board report to your shareholders and keep them posted on what is happening. If you have cash flow issues, then they are more likely to support you if they feel they have the full picture.

There is so much more I could cover but I will leave you with this. I speak to a lot of startups and I mean a lot. I see or did see a lot of decks and cash flow is the biggest challenge. I have seen high turnover companies with cash flow issues that have put them at the mercy of investment and terrible deals for shareholders. Don’t be one of them.

This will all get better. It’s not dislike Dotcom Bubble bursting times. Parts of the startup or scale book go out the window for a bit and just focus on getting through this period. IF and when you get through this, you can probably get through anything.

My door is always open.