Turnover is Vanity, Profit is Sanity, but Cash is King, as the saying sort of goes. But what are the best ways to keep on top of your cash position? Here are some suggestions:
- Make sure your customers pay on time. If you give customers credit, make sure you follow up regularly with them and in a timely manner to ensure payment. The longer you leave it to chase a debt, the harder it becomes to recover it. Consider asking for an up-front deposit.
- If you receive grants to do work, will the funder agree to pay some or all of that grant at the start of the project? Otherwise you will end up doing the work using your own cash resources before the funding arrives.
- Stop spending! It’s an obvious one of course, but not the easiest thing – you will need to decide what is essential spend and what you can manage without for now until the cash position gets better. One method at times of emergency is to make sure all spend has to be signed off by the Finance Director. Yes its bureaucratic and time-consuming, but even if the FD turns nothing down it will slow the rate of expenditure down and make staff think twice whether purchases are essential.
- Can you buy it on credit? Leasing capital items rather than buying them outright is quite common. Paying for goods in instalments is often possible – sometimes you just need to ask.
- If the worst comes to the worst, you could consider taking longer to pay your creditors – just be warned that unless you communicate readily with your suppliers to let them know what is happening, you will very quickly erode their goodwill.
- Speak to the bank manager. The bank doesn’t want your organisation to fail, so will usually be able to give you an overdraft or some kind of credit facility. You will need to have a clear business plan that details how your cash position will improve in the future though.
- Plan your cash flow. By mapping out the timings of the money you know that is coming in and going out, day by day, you will be able to forecast when your cash reserves are going to be at their highest and lowest, and plan the expenditure that you can move about accordingly.
- Review your pricing. Does it cover the full cost of what you are providing – and that includes the overheads and administration. It’s easy to assume that if the price exceeds the direct cost of sales then all is well, but if that gross profit is not enough to cover all your costs then you will be in trouble. Ask your Finance Director what the overhead rate for your company is. Do you know which lines of activity are profitable and which ones run at a loss? And don’t be afraid of increasing prices – if your product or service is truly valued, then the customer or funder will be willing to pay what it truly costs.