There are many ways of improving Cash Flow for a business and we have given you a few ideas to do just that.

To help you see how these ideas can help your business it would be worth while doing some cash flow projections. The Cash Forecaster can be used as a management tool to identify critical costs areas of the business and how these impact the future cash-health of the business.

For example – you might like to experiment with introducing Factoring or Invoice discounting to improve the flow of cash from your customers whilst you are in expansion mode – Just because a business is making a profit it might still fail if the profits are not turned into cash – Remember ‘Cash is King’ in business!

You may have heard of the term ‘Over Trading’ – Over trading is where a business is making good sales and turnover but that it is not able to keep up with the payments to suppliers simply because their customers are late in paying the company. The obvious way to correct this is to make sure that your payment terms to your suppliers are more generous than those given to your customers. Alternatively, the introduction of Factoring will help.

Having a Cash Flow Management tool to hand will help you to explore the effect these ideas will have on your business:

1. Increase sales and in particular those involving cash payment or payment by either standing order or direct debit.
2. Reduce your direct and indirect costs and overhead expenses.
3. Consider increasing your prices and especially to your slow payers – see Bowraven’s “Profit Increase Software“
4. Review the payment performances of customers and be more selective when granting credit – start using a credit report company to check the credit worthiness of potential customers.
5. Consider up-front deposits or multiple stage payments – approach a loan company to advance the money to you and offer credit terms to customers.
6. Reduce the amount of credit given to customers and change your payments terms – i.e. reduce the time allow for customers to pay.
7. Introduce factoring or invoice discounting to accelerate receipts from sales.
8. Make sure that your sales invoices are raised as soon as the work has been completed.
9. Offer early payment discounts and consider introducing late payment charges or fees.
10. Generate regular reports on receivable ratios and aging or your customer balances and use more pro-active collection techniques – involve your sales team and make sure that any commissions are only paid where customers pay the company.
11. Consider the 80/20 rule with regards to your customer list and product lines – make sure you know where your profits are coming from. You might well find that 80% of your profits are coming from 20% of your customers or 80% of your profits from 20% of your product lines – if either of these are true consider not dealing with the 80% of customers and cancel the 80% of non profitable product lines. Be careful when do this, as it might be that certain products are reliant on others, in which case they may be ‘Loss-Leaders’.
12. Take a look at how you pay your suppliers – ask for extended credit terms. Get new quotes from other suppliers and re-negotiate prices of supplies.
13. Try to reduce your stock levels (inventory levels) and improve control over work-in-progress – make sure that you are billing work in progress on a regular basis and keep write-offs under review.
14. Sell off or return obsolete/excess stock (inventory).
15. Defer or re-stage all capital expenditure.

Planning these changes and which ones work best for your business can be done using our tried and tested Cash Forecaster.

Post by Russell Bowyer

Bowraven has recently launched it’s latest versions of the Cash Forecaster with the following versions:

- Cash Forecaster – Basic: Will forcast for up to 12-months on a monthly basis.
- Cash Forecaster – Standard: Will forecast for up to 3 years on a monthly basis for each year.
- Cash Forecaster – Vision: Will forecast for up to 5 years on a monthly basis for each year.
- Cash Forecaster – Pro and Pro Plus: will forecast for up to 7 years on a monthly basis for each year.

The latest version have been fully revised and re-vamped and include the following features:

- Forecast profit and loss and cash flows for up to 7-years on a monthly basis for each year.
- Balance sheet for the opening period and at the end of each period end.
- An option to enter up to 10 loans or hire purchase (Depending uponthe version you purchase) with a number of key features allowing you to have loan repayment holidays, interest charged to the loan or directly to the cash flow and much more.
- Up to 20 product lines with associated cost of sales lines (the number of product lines depends upon the version you purchase.
- Automatically calculates overdraft or deposit interest.
- The feature of entering flexible customer payment terms ranging from cash sales, 30-days, 60-days, 90-days and 120-days. Not only that you can allocate percentages to each payment term, as we all know customers never pay on the same date as each other.
- Flexible supplier terms allowing you to allocate a different term to each cost of sale and expense line.
- Automatic credit card charges where this is appropriate to your business.
- VAT or Sales Tax terms – the Cash Forecaster will do all the necessary calculations.
- Company tax calculator with features that allow you to adjust the profit to a taxable profit and the rate of tax and when it is paid for each of the forecast periods.
- Flexible depreciation rates and automatic calculations for any number of rates and methods that you can choose.
- Up to 30 overhead expense lines – each with its own supplier payment terms.
- Simple stock and work in progress feature.
- Factoring or Invoice Discounting option with a number of great features to allow you to see the effect of either starting or finishing invoice financing (available on the Vision, Pro and Pro Plus versions only).
- Easy income and cost of sales sensitivity analysis tool without the need to re-enter data so that you can trial various scenarios.
- Easily enter dividends or drawings by business owners and capital introduced or director/partner loans.
- Other debtors and other creditor facility.
- You can easily enter your opening balances of your business.
- Flexible headings that can be changed to suit your needs.
- Reports include an assumptions report, summary page of the forecasts which has a breakeven analysis, Cash flow forecast, profit forecast and trading summary showing the product lines, overhead report, balance sheet report, fixed asset report, loan report and VAT/Sales Tax report.

For more information and to download the latest Cash Forecaster – click here.

There is no doubt that the recession is hitting everyone and as a result there are not many businesses that have not been affected so far. This is the time for the “Survival of the Fittest” and if you want to survive the recession you need to take action.

Most businesses are stuck with the idea that the only way to increase profits is to increase prices and some think that the only other way is to increase their customer numbers. Both of these two actions will increase your business profits if they are done in the right way, however, they are by no means the only ways in which to grow your business. In fact I have listed that there are actually 7 Ways to Grow Your Business.

When I have spoken to most business owners they usually say “We can’t possibly increase our prices!” “We will lose our customers!”. So this is out of the question as a way to improve cash flow and business profitability. Also, in the present climate businesses might be finding it difficult to obtain banking finance or business loans to help with cash flow, not only because of the banks reluctance to lend, but also the rates are not that favourable right now, despite the lowest bank base rate the country has ever seen!

Some businesses are put into a ‘Catch-22′ situation whereby they feel they cannot increase their prices for fear of losing their clients and they lack the funds to pay for the advertising necessary to get more customers. In a recession though, it is even more important to continue to advertise your services and products. However, to increase your sales and your profits, advertising is not the only way to do this…more of that later. What all businesses must do and in particular in a recession, is to make sure the advertising they are doing is working.

Is your advertising working?

So what do I mean by this? What you can measure you can manage, so for example, if you take out an advert in your local news paper, you need to train your staff to ask when enquiries come in, where the enquirer got your company details from. If your new advert is not working (as confirmed from the data gathered from your incoming phone calls), this could mean one of two things; either that the advertising medium is the wrong one for your type of business; or that the advert copy needs to be changed. If however, you are not monitoring your telephone calls, how will you know whether your advertising spend is working or not?

Let me take this opportunity to tell you about three of the 7 Ways to Grow Your Business and to introduce you to Profit Increase Software. Profit Increase Software has been designed on the basis that there are seven ways to grow your business – these seven ways do include price increases and increased customers. However, what is worth noting here is that some of the 7 Ways to Grow Your Business do not have to cost the earth to do – three of these seven ways are:

1. Increase the number of customers of the type you want to have – This is quite an obvious statement and it is not rocket science. We all know that the more customers we serve the more money we make, subject to those customers being profitable customers. “Customers of the type you want to have” means that we don’t have to take on all customers, as no business wants to deal with troublesome people or people that cost more in time than in what they spend at your business.

Well let me explain to you that increasing client numbers is not always the only way to increase profitability and in a well thought out change you can actually achieve higher profits in your business with fewer clients.

2. Increase the prices charged on your products – not always a good thing to do and especially not good in the middle of a recession. We see so many companies and mostly retailers having to apply heavy discounts to their products just to stay alive. I am not therefore suggesting at this point that you should necessarily increase your prices, however, it is worth reading my article about how I tripled my prices and made my business more profitable.

3. Increase the number of times customers come back – A must for all businesses is to capitalise on your greatest asset – “Your existing customers!”. If you maintain a customer database you can use this database to your advantage, by writing to your customers on a regular basis to entice them back to buy from you. you can use this client contact to tell them about any special offers or new products or services you have. Most business owners forget about their existing customers and try to attract more and more new ones. Let me tell you it is many times more expensive to market to potential customers than it is to people that have already purchased from you and are already a customer, assuming that their experience with your business was a good one.

There are in fact, four other ways to grow your business and these can be discovered in the manual that accompanies the Profit Increase Software. This software is easy to use and it has been written using Microsoft Excel. You will therefore require Microsoft Excel to run the software, but you only need a very basic knowledge of Excel to work it.

This software has been designed so that you can quite quickly and easily discover what you can do to increase your business profits. As an example, this software was used in a meeting with a client who was adamant that he could not extract any more profits from his business, but after three hours of
pouring over figures, using this software and brain storming ideas – we added £50,000 to his bottom line! Well, the software helped us to target where the extra profit was, which led the client on to think about how to achieve that extra profit. To date this same client is still operating the idea and making the extra profit, so his pay-back is probably in the region of £350,000, as this exercise was done back in 2002!

What is even more impressive about this profit increase is that it cost the business absolutely nothing to implement the change (well it cost them my fees) and did not involve any costly advertising or marketing. The idea was sitting right under the client’s nose, it took using this software to find it and to force the thought process required to realise that there was a very simple and straight forward way to increase profits.

As another example, this system was once used for a bakery which was having cash flow problems and they had gone to the bank for a loan to alleviate the problem. However, before they went to the bank they approached their accountant – who had luckily just purchased this system. The company was asking for help in putting business plans and cash flow forecasts together. However, the accountant spent a few hours with the client pawing over figures from the business and utilising this program. Within a short space of time worked out that they could quite easily remove the cash flow problem without the aid of a bank loan.

When the accountant and their client first played with the figures on the worksheets, they were looking at additional profits of around £80,000. However, when they set to work, the actual profits in the first year were under this amount and somewhere around £50,000. But the company did not need a loan and the cash flow problem was solved and the client was more than happy with his accountant! The bank might not have been happy though!

So if you would like to buy the Profit Increase Software click this link and get to work on surviving the recession - their might well be some extra profits sitting right under your nose too. If however, you would like to purchase some of my time to help you in this process then email me at info@in-business.org. My consulting charges are not cheap, and start at £1,495, plus VAT for the day, but if you look at the results that can be achieved here, these soon pale into insignificance when those extra profits start to role in!

See also – Are there any businesses that are recession-proof?

and: What’s the price of a new customer?

and: Cash flow is king!

Keep cash flow to an optimum by observing the following suggested methods:

– Keep your payroll bill down to an absolute minimum – however, always pay good money to good employees or they will walk!
– Try to avoid signing long-term rental agreements and if fancy offices are not necessary don’t bother with upmarket office space, especially if your customers rarely visit your business.
– Don’t overpay yourself – you only need to take out what is enough to feed yourself.
– Keep a close eye on staff travel and entertainment and avoid issuing staff with company credit cards and mobile phones!
– Fancy office furniture hurts the bank balance and is not necessary unless you are in the type of business that needs to impress clients. Secondhand or liquidation stock furniture is the best option and will save you a small fortune!
– Keep an eye on your supplier costs and where possible play one against the other to keep them keen and your profits high.
– Always call your customers that owe you money and make sure you keep a close eye on “Debtor Days” (Debtors days is the time your customers take to pay you from the invoice date)
– Pay your suppliers on time, but if you are going to be late paying call the supplier concerned and always, always stick to any date agreed between you.
– Don’t waste electricity by leaving computers and printers on over night – this is also good for the environment too.
– If you are out for a business meal, if the other side offers to pay, never pay!
– Get your invoices out on time and on a regular basis – the sooner you invoice the sooner you get the money!
– Create good systems in your business that will help to save time and will help you to keep employees to a minimum.
– Delegate jobs to the lowest possible denominator in the business – having good systems will help with this process.

For help with preparing a cash flow forecast click this link “cash flow forecasting made easy”

Cash flow is the key to business success

The vast majority of business failures is down to bad cash flow, if not all failures for that matter!

If you want to run a good business and a successful one at that you must keep an eye on cash flow. Whilst profitability is important, profit is no good to any business unless the money you invoice to your customers is collected in full and in time!

Forget balance sheets and profit and loss accounts if you are not accounting minded, but get to grips with your business cash flow. If you lose control of your cash flow you will lose control of your business either to the bank and or the receiver/liquidator!

If anything, with most new ventures the cash flow is over optimised. It is always worth while being realistic when planning cash flow for your business.

These words are probably stating the obvious, but they are worth writng, as many a time the business owner (whether new or established) take their eye off the ball. So what was a promising venture becomes a statistic due to a lack of control over the life blood of the business – CONTROL CASH FLOW!

What can and does happen, and in particular with new businesses, is that the company over expands and the cash flow does not keep up with the businesses expansion. The new business is having to buy new stock to keep up with demand, but the customers are either not paying on time or the new business is not chasing it’s customers hard enough to pay! So although the business is showing a healthy growth and profit, there is not enough cash flow (or working capital) and the business faulters or fails!

Many a time when a business is in this situation, the business owners turn to factoring of the debt. However, be careful with this solution! Once you have factored your debtors you are into higher cash costs and it is almost like selling your sole to the devil! Don’t get me wrong factoring has it’s place and I have considered it’s use many a time, but be very careful with it and try where possible to look at how to get out of it as soon as possible.

In a start up situation the other factor that is almostly certainly under estimated is how much working capital a business needs. Working capital is the amount of cash needed to run the business and is the difference between the highest balance in your bank account and the lowest balance in your account (or if you have an overdraft facility, the highest point in your overdraft facility). To be sure your business is successful your working capital should also include a buffer over and above the above difference. The amount of this buffer is entirely up to you, but I would suggest at least 25-50% extra, if possible!

Don’t be an ostrich! Never bury your head in the sand when things are going wrong, always act right away. Make sure you have a good credit controller in your business or where possible don’t offer credit. There are many ways to get your customers to pay without letting them have credit, for example, I am a great believer in getting customers to set up a standing order or if your business is big enough a direct debit (banks will not normally allow you to set up a direct debit facility until your turnover exceeds somewhere between £2-5 million).

Some must do’s in business for good cash flow:

– Always make sure you meet your payroll, if you don’t pay your employees your business will faulter!
– Always keep your existing customers happy, don’t just focus on new business.
– Always collect your debts on time and consider reducing the credit period given to your customers to as low a period as possible or even to a zero period by introducing standing orders or direct debits.
– If your customers are not paying and bad debts are on the increase, review your customers services to see if all is well with the products or services you supply.
– Always pay your suppliers and tax bills on time- please note that the Government puts more businesses into liquidation than any other organisation! So always pay your tax on time!

Finally, make sure you plan your cash flow by producing a cash flow forecast yourself or by employing a good accountant to do it for you.

If you are a “Non-accountant” and want an easy way to produce a cash flow forecast then click this link: “Cash flow forecasts made easy”