By Jamie O’Hanlon, Avid Partners
Managing cash flow remains the single most important factor in surviving in business and is one of the major challenges to arise out of the current business environment for every business owner.
The current environment may cause more cash leaving your business—whether that’s through payroll, rent, and other fixed or variable costs—than you have coming in.
The good news is that managing cash flow isn’t a new concept. This is not the first time that Irish SMEs have faced this level of uncertainty. In this article, Jamie O’Hanlon, Avid Partners, explores tried and tested principles of effective cash flow management to help your business maintain a positive cash position in the difficult months ahead.
Narrow Your Focus
For now, focus on a smaller window. We are preparing shorter-term cash flow models for our clients – forecasting over 13 weeks as opposed to the entire year. This narrow focus helps navigate short term challenges and uncertainties. Deal with what’s in front of you and schedule cash coming in and going out over this shorter cycle.
Identify the key cost drivers within your business and review all items – fixed and variable costs. Depending on your business model and industry, it’s usually easier to cut variable costs, so tackle those first. For example, can you find a cheaper way to transport goods? In the medium to long term, think about how you can change fixed costs into variable ones e.g., contract manufacturing or third-party warehousing.
Where possible, defer non-essential capital expenditure, minimise discretionary spend and question every cost. Make this part of your business culture however don’t just cut costs for the sake of it. Some can be delayed until the environment improves; others may be necessary to prepare your business for the rebound.
Get cash into the business as soon as you can. Establish a formal debtor management process. Encourage payments upfront by accepting debit/credit cards or by offering discounts. Be aware of signs that a debtor may be in financial difficulties.
Supplier relationships represent a flow of cash out of the business. Identify those strategic supply relationships. Tighten stock management so that cash isn’t tied up in surplus stock, improve internal processes and look for opportunities to negotiate new arrangements such as stock-holding facilities with suppliers.
Know Your Numbers
Debtor days, creditor days, stock days, debt to equity ratio – managing these numbers will put you in better control, improve your ability to keep cash in your business and, help raise funds if needed. Talk to your accountant. They will advise what the optimum numbers are for your industry/business and keep you on track.
The pandemic many have put pressure on your revenue stream. Think outside the box. You have fixed assets you use to generate revenue. Can you change your bricks and mortar business to an online shop? Necessity is often the mother of invention.
Stick to Your Promises
Know this is difficult right now however it’s so important that we all continue to honour our financial commitments. Seek promises you can rely on and those promises are returned when we pay our suppliers, keeping that vital cash circulating in the economy.
Remember that a profitable business can fold due to a lack of cash however if you implement these steps to strengthen cash flow, your business will be in a much stronger position.
Good cash flow management is now a priority and an essential part of a business survival plan. If you are experiencing cash flow difficulties, talk to Jamie O’Hanlon and the team at Avid Partners to see how we can assist your business by establishing an effective, structured cash flow system.
Arrange a free consultation with us to talk through the specific aspects of your business and we will tailor a package to match your needs. Phone us on 0818 303087 or email us at email@example.com.
This article was updated on 29 January, 2020.
"A breath of fresh air. Your firm demonstrated enormous commercial understanding in turning around negotiations with a potential target vendor. I admire your style and ability to drive the deal forward. Many thanks."
"I would like to say I'm very happy with your service, especially the audit team, your staff are always friendly, helpful and a pleasure to deal with."
"Your business approach to clients is very impressive. I have always found that when explaining the types of service on offer, it is always concise and straight forward. The level of trust that clients place in your company and its staff speaks volumes."
"I would like to take this opportunity to say how much we are impressed with your company's professionalism, it has been a pleasure working with you all and we look forward to working with you in the future."
"Avid Partners - Accountants & Business Advisors are an excellent firm of accountants, their quality ethos is outstanding."
"I have dealt with Jamie O' Hanlon, of Avid Partners - Accountants & Business Advisors Chartered Certified Accountants, for a number of years as he is auditor to one of my clients. I have always found him to be professional and responsive in his approach."
"Service is second to none; there is always someone at the end of the phone for any business advice. The staff are very easy to get along with, very approachable and know exactly what they are talking about"
We at Fitzies Bar have worked with Avid Partners - Business & Financial Advisers for over five years. We find that the advice and support offered to us in addition to all of our book-keeping requirements to include payroll, VAT, etc. is invaluable and has helped to contribute to our continued growth especially in these challenging times. I would have no hesitation in recommending Avid Partners.
Jamie and his staff are a pleasure to work with. They respond promptly to any queries we have and are critical to our financial planning and the future needs of our business. I would highly recommend them to anyone interested in accounting services.
We at Stillorgan Cycles have used Jamie and his Team at Avid Partners – Accountants and Business Advisers for over five years. We have found that the retail advice and support offered to us is second to none and has helped to contribute to our continued growth especially in these challenging times. I would have no hesitation in recommending Avid Partners.
I met Avid Partners through a local business networking group. We had been using the same accountants for years and found that in these harsh economic times that we were not getting good enough value or service. We were very impressed by the company's professionalism and enthusiasm and genuine interest in helping us get the most out of our business. As a result we are now clients of Avid Partners and are thrilled with our decision.
After meeting Avid Partners with a view to changing our accountants, we came away with a better deal financially and a feeling that we were in capable hands. We feel that Avid Partners has a personal interest in the welfare of our business. Avid Partners have given us great advice, help and support and respond to our day to day queries with speed and efficiency. We feel it was a great move for us to change to Avid Partners.