Davies Finance Cash Flow Planning

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Information about Davies Finance Cash Flow Planning

Published on February 20, 2014

Author: daviesfinance

Source: slideshare.net


Cash Flow Planning & Cash Flow Finance

Why is Cash Management important?  There is a saying: Turnover is Vanity, Profit is Sanity, Cash is King – cash in whatever form is the life blood of any business.  Ability to be informed about your company means that you can make decisions with a good base of knowledge:  Will I be able to pay end of month wages  Can I purchase that new equipment  Should I take on the new contract  What happens to companies that do not have this information – a well know statistic is that 85% of businesses fail in the first 5 years and the most common reason is “lack of cash”. . 1 For more information see www.daviescorporate.co.uk/cash-flow-finance

Who does Cash Flow Management?  In essence – not many businesses.  For many SMEs there is not enough hours in the day to complete the work they have – let alone manage the cash!  Most companies, do not have a full time “finance” post – even if there is an Accounts person/department – they do not plan and manage the cash.  Large corporates tend to have a dedicated person whose sole responsibility is to forecast the income and expenditure of the business – there is obviously a ROI for their salary! . 2 For more information see www.daviescorporate.co.uk/cash-flow-finance

A Cash Flow Cycle Day 1: Order Goods Up to day 14 – receive goods Day 25 – 40 receive invoice for goods/stock purchased. Goods are then produced and at some time in the future sold! After Order or sale the goods are delivered to customer – say 3-5 days Invoice produced and forwarded to customer for payment Assuming credit terms of 30 days – payment received Min Number of days cash Flow could be 45-60…maximum could be 200+ depending upon production. 3 For more information see www.daviescorporate.co.uk/cash-flow-finance

Cash Planning  Based on the previous cycle – it is key to plan.  Cash Flow forecasting – a requirement to plan – details expected income, known expenditure and when they are due to happen.  Many aspects have to be forecast – but remember a sale is not a sale until the money has cleared!  Remember to be realistic – there is no point in assuming that you will convert all estimates/bids for business – look at past info.  Some companies prepare 3 forecasts – optimistic, realistic and pessimistic – to plan for all eventualities. 4 For more information see www.daviescorporate.co.uk/cash-flow-finance

Cash Flow – The Ins and Outs Accounts Receivables – collecting payments:  Around 77% of business sales are on credit terms. Always issue credit terms with your invoice.  Normal term 30 days….but lots of variations! Ensure that your customers are aware of your payment terms.  Ensure that you have in place a credit control system….and do not be afraid to chase for your money!  Always credit check a new client before you accept an order …. regularly check existing customers. Accounts Payable – your payments out :  Ensure that you know your suppliers terms – and pay on time.  As much as possible, ensure that your business has a good credit rating and use it to obtain accounts and even discounts from suppliers. Negotiate discounts for cash payment.  Verify/check invoices before they are paid.  Manage your payments – plan when it suits YOUR cash flow to pay. 5 For more information see www.daviescorporate.co.uk/cash-flow-finance

Top Cash Flow Tips  Ensure that you let your customers know when they are due to pay you.  Whilst always happy to get new orders from new clients – remember to credit check them. Establish a credit granting application form. If new to you, who were they dealing with before – have they been put on stop!  Keep good records – if a payment is late, make sure that you chase immediately.  Keep a cash flow forecast – use it and update it – it is a great base for decisions.  Establish supplier accounts, relationships where possible – if not try to obtain discount for cash .  Try to keep stock to a minimum – it uses valuable cash assets to keep items ready for sale. Invest in a good stock control system. 6 For more information see www.daviescorporate.co.uk/cash-flow-finance

More Cash Flow Tips  Sounds crazy……but remember to invoice as soon as possible and include:  Bank Account Details – BACs payments are cleared funds the day they are received…a cheque can take between 4-7 days to clear!  Date when the payment is expected to be received by you.  If possible use electronic means to send invoice – email, is much quicker.  Not always possible, but call the customer’s accounts depts. to verify everything OK with invoice and it is the next payment run. 7 For more information see www.daviescorporate.co.uk/cash-flow-finance

Cash Flow Solutions – alternative finance  Rather than resort to your credit card….there are other ways:  Bank Overdraft facility – perfect if you qualify – but likely to require security.  Business Loan – Government will guarantee some requests – criteria apply, but not really used for cash flow purposed more for asset purchases. Bank will certainly require security. Options available: •Construction •Recruitment Finance •New Start Business Finance •Trade Finance •Export Finance  Venture Capitalists, Angel investors  Factoring  Invoice Discounting 8 For more information see www.daviescorporate.co.uk/cash-flow-finance

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