Cashflow planning and management


Cash is “Life Blood” says Brian Dignam, OSK Dublin Accountants.  Without theability to meet the day-to-day demands from its suppliers for payment, a business may well find itself cut off from its essential inputs and face serious cashflow issues.  For any business, essential items such as trade goods, raw materials, employees and services such as light and heat all need to be covered to keep the business going.  Keeping a tight rein on cashflow is important at the best of times.  When the economy slows and the insolvency risk rises, it becomes absolutely essential.

Business owners accustomed to dealing with their accountants should nowleverage this relationship to plan through this difficult period.  Senior management should be consulting with their financial adviser on a regular basis in order to gain a full understanding of the business' cashflow.

What kind of problems are businesses experiencing?

The most basic problem at the moment is a lack of cash.  Lending institutions are not as keen to lendin such an uncertain climate.  Companies are pulling in their expansion plans.  Unpaid suppliers are going to court to recover their dues and ask for possible closure of businesses.

How can business owners exercise greater control overtheir spending?

Business owners need to keep a close eye on any unnecessary ordiscretionary costs.  Full credit terms should be utilised and where possible credit and pricing terms should be renegotiated with suppliers.

Alternatives to loans and overdrafts

Traditional invoice discounting provides an injection of cash into abusiness by releasing money against unpaid sales invoices. It is possible to receive up to 90% of the value of the invoice, when the invoice is raised.  The remaining balance is made available when the outstanding invoice is settled.  The advantage here is that working capital may grow in line with sales, however this type of finance can be expensive.

There are a wide variety of invoice discounting products available, and what worksfor your company depends on the type and scale of business you are involved in.  The pros and cons of such alternative sources of finance should be discussed with your financial adviser.

Clever purchasing

Hire purchase agreements and leasing arrangements will prevent abusiness parting with valuable cash, especially when purchasing capital equipment.  If you are holding too much stock and tying up valuable cash, cut back on supplier lead times.

Income controls

Prompt settling of bills should be encouraged by discounts.  Regular customers can be put on monthlystanding orders, settling any balances at the end of the year.

Debtor control

Controlling debt is a key part of income control.  Customers should be sent reminders in advanceof the due date of payment.  Payment by direct debit and credit card will also help cashflow.  Check the creditworthiness of new customers and review the credit limit and terms of late payers.

Cashflow forecasting

Businesses need to prepare monthly cashflows and have constant reviewsof actual v budget.  If this expertise is not available in house consult with your accountant.

In conclusion, the outlook is bleak and commentators tell us thatbusinesses will have to plan for two and possibly three years of difficult, challenging times but those who take the appropriate actions now and manage their cash well will emerge from the current downturn in a much stronger position.

Contact  Brian Dignam for all your small business a

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