Let’s Talk Business with Neil Jaggar
It’s not a lack of profit that can kill your business, it’s a lack of cash and this is notoriously the most dangerous time of year that companies struggle with cash flow.
Every business is like a bucket with a hole in it. The water going into the bucket is your company’s income or sales, the money it gets from customers. The water flowing out through the hole in the bottom is your company’s outgoings, or expenses. It is this hole that restricts the flow of water out of the bucket; if it’s a small enough hole then water will remain in the bucket. If the hole is so big that it can’t keep any water in then that’s when your company has negative cash flow and big problems.
So how can your company take control over cash flow? Well, communicating effectively with customers and establishing clear timescales is essential. When we shop at a supermarket we all pay at the till, not next week. The supermarket gets our money straight away. That may not be possible for all businesses, but your businesses can agree a payment timescale that works for you. Of course, you must be able to afford that credit period, so credit terms is part of any negotiation in agreeing work. Some companies ask for a deposit, others agree to staged payment terms. Some have a 30 day credit agreement, just because that’s the way things are. Never simply accept that and always negotiate payment terms that suit you. Keeping an eye on expenditure helps keep water in that bucket. With suppliers your company must again negotiate as good credit terms as possible making sure it suits your business.
Sometimes the water doesn’t flow into the bucket because customers are not paying their bills. This might be due to a lack of prior negotiation over payment timings. Simply contacting the debtor and explaining that the money is now due is sometimes enough. Others need a more direct explanation that your company has delivered on its promises and that now it is their responsibility to honour their side of the agreement and pay the agreed amount within the timings specified. If there is a problem with payment because of cash flow issues, then agree when the debt can be paid and the company owing money is then more likely to pay within the agreed timescale.
Cash flow forecasting is the key. Charting cash flow on a monthly basis is a crucial part to running your healthy business. For example, forecasting when to pay business taxes and VAT bills means that there are no sudden nasty surprises. Accurate forecasting will show the holes in your business’s cash flow and help you to know in advance when there will be a problem and enable you to do something about it.
Neil Jaggar is a business consultant. His career has developed from sweeping the shop floor, through Sales, Operations, Marketing, IT, Logistics, Inventory, Finance Director and Commercial Director to Managing Director. From selling automotive components in a small retail shop in Huddersfield to directing a multi-million pound distribution business employing 350+ staff across 40 UK sites. He has started four companies and successfully exited two. The third isn’t for sale but the fourth will be. Neil is available for an initial no cost 2 hour business consultation.
Contact him on 079730281881, firstname.lastname@example.org or visit www.jackroyd-developments.co.uk