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Author: Susie Kevern

SOS – help managing cashflows in distress?

Posted on by Susie Kevern

The saying “Cash is King” is very true: profit doesn’t pay the bills. But that doesn’t help when there just isn’t enough cash to go round and you need help with managing cashflow and getting out of trouble.

This is the final instalment in a series of posts that I started during the summer looking at the impact of the Covid disruption on cashflow and suggesting ideas for action to improve it.

Background
Recently it has become clear that the government does not feel able to support every business that is struggling with the impact of Covid. This has been greeted with dismay by a large number of businesses who would be financially viable were it not for the restrictions that are currently in place.

With the prospect of social distancing and local lockdowns continuing for the foreseeable future what can be done to ease the pressure? Solutions to cashflow problems are always individual to a business; dependent on what assets they have and the owners’ attitudes to the risk that they may be undertaking. So I want to talk more here about ways to approach your own issue in order to make a meaningful plan.

How long has this been going on?
If you stand back and think about the last few years (life before Coronavirus) was everything rosy then? In most cases lockdown in March was a bolt from the blue that upset a profitable, stable business. But in some cases the business was lurching from one emergency to another trying to keep ll of the creditors happy with limited funds.

In both cases there are big challenges ahead, but how you approach them depends on whether things getting back to “normal” will help cashflow.

Furthermore, what do you think needs to happen in order to improve your situation? This is largely going to be outside of your control, but working through a range of scenarios could help you to understand how changes in the future will impact your business.

Back to drawing board
My focus is always on the cashflow forecast. At times like this there is no other way to manage your business.

With the information you have can you work out a basic level of spending every month? A “burn rate” will help you understand how much cash you need to be taking each month in order to sustain your current spending. This is different from breaking even from a profit perspective; for a start it will include any loan and finance payments. But more importantly you need to think about setting aside money for VAT every time you get a customer payment to avoid shocks at the end of the quarter.

With this information on hand how long can you keep up the current spending rate for? What can you do to slow down the burn?

Challenge your assumptions
Sometimes the forecast doesn’t look as bad as reality – usually this highlights that customers are taking longer to pay than the terms that were offered to them. This is quite common in the current circumstances. It may be that time spent calling customers and chasing debts could pay dividends here, even if you need to agree to payment plans.

Rent arrears & payment holidays
The Coronavirus Act provided protection for businesses who were not able to pay their rents and this has been extended now until December 31st 2020. However the best course of action would be to discuss this with the landlord; the law purely limits the potential for eviction – if you want to remain in the the lease the rent will need to be paid at some point.

Also, many lenders have offered payment holidays on loan repayments. But once again, this simply delays the spending rather than taking it away, so the impact needs to be carefully considered before any action is taken.

With nearly two months left to apply for a Coronavirus (CBILS) or Bounce Back loan there is a chance to access additional cashflow if you have not already made use of the facilities. There is now a wider variety of lenders offering CBILS loans, and some may take a more innovative approach than the high street banks did during April and May, so it could be worth looking again at this if you were unsuccessful earlier in the year.

There may also be opportunities to re-finance larger assets or even renegotiate existing loans in order to slow the repayments and support cashflow.

The bottom line
Hopefully there are options to be looked into to try to hold on to cash within your business, but realistically these may not all be possible or palatable given the current state of the economy.

The biggest worry that I come across when discussing cashflow issues with struggling businesses is that often the business owner has given a personal guarantee against a business loan or there are other assets which would be forfeited if payments were not maintained.

If you are worried about your circumstance it is worth taking advice now. I am talking to clients all the time about help with managing cashflows. Every case is individual, but since March the government has brought in temporary changes to the insolvency law to allow Companies to continue in business while recovering from the financial impact of the pandemic. A number of these measures have now been extended further until December or even March 2021.

However there is nothing to be lost from consulting with an expert; an Insolvency Practitioner or experienced accountant, to ensure that you are making the right decisions. Insolvency Practitioners are often seen as being scary, harbinger of doom but in my experience they are always professional but also approachable, practical and experts in helping businesses in distress. Better to spend a little time discussing the situation with a qualified adviser than to spend weeks agonising over your fears.

At the end of the day, if you are worried ask for advice, get organised and be realistic. 

For more information, take a look here at how I can help businesses understand what’s going on in the finances and plan for healthier cashflow.

Making the most of cash

Posted on by Susie Kevern

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[et_pb_column type=”4_4″][et_pb_text admin_label=”Text”]Generally people only think about cashflow when there is a shortage of cash in the bank to pay the bills. But what happens if you find your business with surplus cash in the bank? For some businesses at present that is a very real possibility, either because the disruption from Covid has played to their advantage, or because they have made plans for a worse impact than they actually suffered.

So what can you do when your business seems to be cash rich?

Obviously the first thing to do is to make/ check your cashflow forecast. It is easy to feel cash rich now, but have substantial bills due for payment in the not to distant future (check out my advice on cashflow forecasting specifically for 2020 here.

As I have talked about before, cashflow pressure usually stems from changes in sales, and so recovery after lockdown (or successive lockdowns) will always present challenges.

The good news in the Chancellor’s “Winter Economy Plan” was that repayments on both the Coronavirus CBILS and Bounce Back loans can now by extended (with the lenders permission) to up to 10 years, and any VAT deferred from spring 2020 can be repaid over the fiscal year starting in April 2021 rather than being due in a one off payment. This should help ease some of the cashflow pressure on businesses who are battling with fluctuating sales.

How much cash do you need to have?
My first reaction to seeing a lot of cash in the bank is that cash is like fuel to power your business’ engine – without it amazing opportunities can’t get off the ground. So it’s worth having a reserve in case of emergencies. To carry on the fuel analogy, this is like having a spare petrol can in the back of your car – it may get you out of trouble in the future.

How much reserve you need depends on your attitude and your business – usually one or two months’ worth of fixed (unavoidable) costs is a good place to start.

Using that fuel
If you have surplus cash on hand at the moment it’s likely that it is earning a pitifully small sum of interest while its in the bank. So what can you do with it to make it work harder for you?

Whether your business has been positively or negatively affected by Covid, having cash in the bank allows you an opportunity to invest in making your business stronger. The disruption has challenged a lot of our old ideas about what needs to be done and how it should be done.

Whether that is adding a new sales channel, launching additional services or adopting new technology in your business there are chances to “future proof” yourself and this surplus cash may be the fuel that you need to kick start the effort.

Make sure that you reflect these plans in your cashflow forecast though, because growing sales usually sucks in more cash than you expect, and the worst outcome is to invest in a new opportunity and then find that you can’t fulfill all the promise because of cash shortages.

Restructure
If you don’t see a particular business development opportunity on the cards at present how about using the cash to restructure existing (older) loans? It is likely that the interest rate will be lower, and the terms (length of the loan) will probably be better so this presents a clear saving as well as help with the ongoing cash repayments.

There is an advantage from replacing a personally guaranteed business loan with a government guaranteed loan. Effectively it gets you off the hook if your business go bust in the future. However insolvency practitioners are already wise to this fact and are likely to investigate the timing and reasons for replacing one loan with another. But if you have a healthy bank balance at present this is unlikely to effect you…

Other ideas
Depending on your business plans and your attitude to risk, if you feel you really don’t need the loan money you can repay it at any time within the first 12 months and incur no fees or interest.

Action!
Above all else it is important to do something. It is easy to let the cash sit in the bank with no particular plans and see it slowly whittle away being used for nothing in particular. This is the worst of all cases: if you use a loan to fund it’s own repayments you still have to find cash to pay the interest at the end, so there is a significant cost to the business with no matching benefit.

So you need a plan. Look at your options; maybe there is more than one, maybe there is a whole wish list. Work out what you need to do, make a cashflow forecast, keep it updated and steer your business to success.

If you have a plan but you need some help working out what the financial implications are then message me here to talk it through.

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Case Study: AMZCO Construction

Posted on by Susie Kevern

AMZCO Construction specialises in building and maintaining anaerobic digestion plants. They work on a small number of complex, multi million pound projects meaning that it is vital that they have timely, reliable information to help keep control of the finances.

On these projects it is easy for costs to spiral out of control so accurate comparison of spend vs budget is essential. The directors couldn’t see how profitable different activities had been or compare actual performance to the detailed budgets drawn up prior to the build.

The accounting software they were using was complex difficult to maintain but it was not possible to change software immediately so some other solution had to be found. I worked with the admin team to make sure that the accounts were accurate and reliable. With good data we could then extract the detailed information required to show actual spend vs budget and explain the overall business performance.

Once pre-existing errors were corrected we were then able to migrate the accounting to QuickBooks at the start of the next financial year, making the bookkeeping much more efficient and the reporting easier and more accurate.

With clear and comprehensive reporting the directors could manage the business effectively. More importantly, information showing spend versus the original budget was vital information to improving pricing on future jobs.

Now we are continuing to work together so that they have access to the support they need as and when they need it.

Business manager Rachel said: “Susie created the reports we needed to keep track of the business and have control over our finances. She has been supportive and friendly, delivering QuickBooks training and designing new systems to suit our business. Knowing that she’s keeping an eye on the finances means we can get on with running the business.”

You can read more and download the case study here: Case Study: AMZCO Construction

Get more information from your accounts

Posted on by Susie Kevern

Why is it that all year end accounts look the same? Does that reflect the information that readers need?

Accounting regulations are massively complicated and I am not disputing the need for that; it is important to make sure that any two sets of accounts can be compared with each other and take the same perspective.

The same thing happens with accounting software: when you set up software from scratch you get a basic, blank set of accounting codes that is a best estimate of what most businesses need.

In both cases the one size fits all approach is fine when it comes to working out the bottom line profit, when you’re simply deducting all costs from total income. But it’s totally insufficient if you want to use your accounts to provide information to manage your business with.

What sort of information might you need?

  • What about income: are you happy to lump all sales together, or would it be useful to compare revenue from different types of sales?
  • How about splitting sales by product type or customer location?
  • And what about your costs? You don’t want to over complicate things, but typically the objective is to separate the costs associated with delivering the product or service from the general costs of running your business.

This lets you measure how things are changing and provides answers to questions like “how come are we busier now but not making any more money?”

How about looking at

  • A comparison of your sales mix (spread of sales by product type),
  • a comparison of margin per customer,
  • the resulting change in percentage gross profit made on sales each month as a result

With a little planning and some organisation you can set up the accounts so that they give you simple m information that you can use to work out what actions to take.

If you want to develop this idea further, what about adding in some comparisons with non financial figures? Working out production wages per working day, or sales per hour worked?

How do you work within the structure? Do you add new codes for things you want to measure, or do you just squeeze them into the existing structure?

At the end of the day, while there is a legal duty to keep accurate accounting records are you in business to create data for the accounts, or are they there to provide you with information?

Take a look at my post about what goes into good management information here to find out more.

Case Study: Ecocleen South West

Posted on by Susie Kevern

I was introduced to Ecocleen South West and the owner Jim Humphrey by his accountant in 2018. The business was growing exponentially but there was not enough information available to track profitability and manage cashflow.

Initially quarterly bookkeeping (in Xero) had been sufficient, but the business had grown to a point where more frequent and detailed monitoring was required. In addition to this Jim needed to be able to compare the profitability of different activities to his initial estimates. Most importantly, although the accounts tracked the expenses incurred there was no forecast of the effects of future sales growth on cashflow.

My first priority was to understand what was happening to the profit and cash generated by the business. An initial review revealed that the business was generating healthy levels of profit and was growing on sound footings.

While sales and profit were growing the timing of payments was putting a strain on cashflow. Improving credit control efforts was a quick and easy way to improve this. A 3 year forecast showed the impact of further growth on cashflow and indicated the level of finance required to give the business the life blood required to take advantage of new opportunities.

Armed with this cashflow forecast Jim secured the funding he required to smooth the challenges during 2019 and the business continues to grow. Now that he has good information he can compare actual performance to forecast and be aware of his future liabilities. In addition to this we identified key actions to reduce the financial impact of this growth, for example how best to sequence new projects to spread the cashflow change.

You can read and download the case study here: Case Study: Managing Cashflow

Closing date for CBILS applications

Posted on by Susie Kevern

Right now (mid September 2020) the media are shouting about the end of the furlough scheme, but the closing date for applications to the CBILS scheme at the end of this month seems to be slipping by with less interest.

Most businesses that I come across have taken advantage of the Bounce Back Loan scheme, even if they didn’t need it, but in some cases this is not going to be enough to support their cashflow over the winter. With just two weeks left now is the last chance take advantage of the government security and zero fees offer.

So what’s the action plan?

First I would revisit the cashflow forecast; it would be naive to suggest that we know any more about what will happen over the next 6 months than we did in a similar position 6 months ago, but we have more evidence to see what the impact of seismic changes is on our specific circumstances.

Don’t forget that any VAT deferred in March will have to be paid back in early 2021.

Even if you have already applied to your bank unsuccessfully there are opportunities to access CBILS through “alternative” lenders like Funding Circle and I have even seen marketing from IWOCA so you can shop around, and in doubt contact advisers to test the water.

The critical thing to do however is to check on the cashflow forecast, to make sure that you are making decisions about the future rather than being a passenger on the ride!

Check out my guide to applying for CBILS support here: Government support

Cashflow First Aid

Posted on by Susie Kevern

Previously I have talked about the importance of having a cashflow forecast, and how to get started creating one. Next in my series of posts about cashflow is my top tips for first aid for when that forecast is looking gloomy.

1. Good decisions need good data

You can’t run a business effectively without up to date information. In particular how much money is owed to/by each supplier and customer.

HMRC is always a key creditor to keep an eye on – the numbers are usually amongst the biggest payments that you need to make, which can lead to unwelcome surprises.

Just as important as up to date accounts is making sure your plan is up to date. Especially in the current climate the future picture can change rapidly so make sure you have confidence in your key predictions (sales, costs and associated taxes).

2. Monitor the vital signs

There is no replacement to monitoring cash everyday, plus most accounting software makes this easy to do. You do need to keep an eye on payments that have not yet cleared, so you know you can rely on the figures.

3. Assess the scale of the problem

In order to understand where cashflow problems arise you need to work out how much cash you need to take each month in order to sustain your spending; the “burn rate”.

This is different from breaking even on a profit perspective; notably it will include loan and finance payments and probably once a quarter VAT payments.

To find your burn rate add together all of your regular spending over a month (or whatever timescale you choose). Compare this to the cash you expect to receive from customers (factoring in VAT!) and the result will show you what you expect the change on your bank balance will be.

4. Quick wins

First things first; chasing any overdue customer debts can bring in cash straight away. This doesn’t have to be aggressive, but opening a dialogue makes sure that you stay at the forefront of your customers’ minds and increases the chances of you getting paid on time.

Get your invoices out promptly; as soon as the job’s finished or on an instalment basis if appropriate. This can make a big difference to the cash that’s coming in.

5. Review surplus assets

There are some assets that every business needs: whether that’s a delivery van, pcs, processing machinery or stock for selling on.

The problem is that this kit swallows up cash (even if you’ve had some credit before paying for it). Take a look at the stuff that you’ve got to hand and consider what it’s worth to you.

Could you raise cash selling off excess stock at a discount? Can you refinance bigger assets (eg vans) to release cash or reduce monthly payments?

This takes a little time and ingenuity, but may reap valuable rewards.

6. Prioritise

In the short term cash flow is more crucial than profit. With that in mind the first priority should be to tackle jobs that can be completed (and therefore invoiced) quickly. Bigger projects may generate more profit but the cash will take longer to appear in your bank!

Don’t go crazy and give away all your profit margin but it may be worth offering early settlement discounts to attract prompt payment to help with cashflow.

7. Reduce spending

Surely this is the most obvious way to impact cashflow, so why does it come at the end? Well, if your business is short of cash you’ve probably implemented some of this already; cancelling the “nice to haves” and limiting unnecessary spending.

Also, while some costs (often marketing) can seem entirely avoidable it is important to put that in context – the short term gain may come with a longer term cost, so it’s important to look at the true return you’d get on each saving.

If things are really bad you may be able to negotiate payment holidays with lenders or lengthen the repayment term which will reduce monthly outgoings, but look out for penalties and other charges that may negate the benefits.

This is only designed to be first aid for cashflow issues; treatment for long term ailments requires specific advice. Often the hardest part is to be objective and challenge fixed ideas. That’s the time to call in an independent professional.

Good management accounts

Posted on by Susie Kevern

Financial Direction is about using good management accounts to improve profits and cashflow. That’s a pretty big claim, so what do I really mean?

Xero produces management reports for you (other software packages are available). They look very similar to the accounts you get at the end of the tax year, but the value comes from looking at them on a more regular basis – usually monthly – and in more detail.

Unfortunately just printing out the reports can give misleading results. Think about:

Are your accounts up to date? This sounds simple, but isn’t as common as you’d think.
Timing: if you deduct a whole year’s insurance costs from just one month’s sales your results may be skewed disastrously. This is where stock counts come in and also prepayments (spreading an invoice over several months) and accruals (estimates of costs not yet invoiced.

Once you have accurate and reliable accounts you can choose whatever figures you want to shed light on what’s going on “under the hood” in your business: really, the sky’s the limit.

Just to start with you need:

  • The right level of detail: maybe you want to bundle all office costs together but how about separating staff costs between office staff and production workers?
  • A profitable history is reassuring, but it’s the future that really matters. A forecast will show you where the risks are.
  • Then you need some KPIs that show how healthy the business is simply and speedily:
          • Financial: debtor day, profit margins, growth rates
          • Non financial: customer numbers, spend per customer, open orders
          • Variances: how this month compares to last month, or to forecast
        Good management accounts should give you information to identify the actions required to steer the business towards your objectives and track the results.

Case Study: Cooper Golding Ltd

Posted on by Susie Kevern

I have been working with Cooper Golding since 2018, supporting owner Paula Golby manage her growing business as she moved form strength to strength as a result of her focus on high quality, tailored recruitment services.

With multiple customers and revenue streams business management was proving a challenge and reliable information was hard to find. With sales were set to treble Paula contacted me looking for better information to show how her rapidly growing business was performing and better systems to manage operations.

They use Xero as their accounting system, which allows them easy access and maintenance of their accounts information. However, like many businesses enjoying high sales growth they were constantly investing in additional personnel, marketing and equipment.

Paula needed clear and detailed analysis to ensure that the decisions she was taking delivered the cashflow and profitability she expected.

It was crucial that the solution should be easy to use and scale up. The most appropriate solution was to improve the information that Xero reported and to create a simple structure of spreadsheets to allow the in-depth analysis required by the team.

With reports that allowed Paula and her team to see how they were driving growth they grew the business beyond expectation for 2018 while maintaining their high levels of customer service. As we continue to work together we now have the information we need to be able to assess proposed changes to the business and make better, faster decisions for the future.

You can download the case study here: Case Study: Supporting Business Growth

Planning for cashflow security

Posted on by Susie Kevern

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It’s finally here: the 4th of July, the day the reawakening begins!

There’s been all sorts of work to adapt operations to make them “Covid secure” – hand sanitiser, face masks, physical distancing, etc. But as well as the practical/ physical preparations, reopening is likely to present financial challenges.

Does this sound counter intuitive? Surely the financial issues came from trying to keep going when there were no sales? When the customers start spending again surely the trouble is over??

I’ve warned before about the cash flow challenges that are likely to hit businesses over the next 12 months so what can you do to create a plan that shows you where the risks are in your own business?

When you make a cashflow forecast it’s not that dissimilar from a P&L forecast – lots of the same headings, but the key thing about cashflow is when the transactions happen.

Usually it feels difficult to run a cashflow forecast more than just a couple of months ahead: there starts to be a lot of assuming which can make the exercise seem pointless.

However a good forecast fulfils two different functions: over the next few months you need a detailed plan; weekly or even daily, to reveal any unexpected potholes along the road. But over the longer term you need to be looking out over at least the next year or two to see what risks you may potentially face in the future as you implement your strategy.

This is especially important right now if you have taken on additional borrowing to see you through this period and also given that you may have pre-Covid tax bills to pay in the latter part of this year.

What do you need to include in your forecast? To start off with look at what’s going on in the P&L; when do you expect customers to pay and when do you plan to pay suppliers.

Some payments will happen monthly, some quarterly and some less frequently than that, so it’s important to try to capture the likely timing.

Right at the moment it’s probably worth thinking about how you’d be affected if some customers start taking longer to pay. Does that change the way you think about pricing? Is it worth offering discounts for prompt payment or taking on extra charges to be able to collect payments by direct debit?

Next on my checklist is loan and HP repayments.

These don’t appear on the P&L at all but are often larger sums of money and usually paid on a direct debit whether it suits you or not.

If you’ve taken advantage of a payment holiday over the last few months how will that affect your future repayments? From what I’ve seen so far Funding Circle are setting up separate repayment plans for arrears, which could make a big difference so it’s worth checking what you have (unwittingly?) signed up for.

Something else that doesn’t appear on the P&L is tax. There are two types of tax that I’d include here; PAYE & NI is payable just a couple of weeks after the month end, so doesn’t distort cashflow too much, however it is easy to “delay“ payment (as no-one chases up on the due date) and then get into hot water in no time. Make no mistake paying PAYE on time is critical.

More complicated to forecast is VAT: it won’t be charged on all your expenses, and not all of your suppliers. VAT makes cash receipts from customers higher than sales in the P&L, boosting your bank balance for a time, so a bonus in the short term but one that can come back to haunt you if you don’t keep track of how much you’re holding on behalf of HMRC.

You could opt for some clever calculations in a spreadsheet, but my best advice is to look at previous VAT bills and try to estimate what percentage of turnover VAT amounts to.

Plus there is no replacement for keeping your accounts up to date to stay aware of any unexpected changes.

So once you’ve got a forecast what are you going to do with it? Well obviously the first thing to look at is what kind of picture does it present? Should you be expecting to be rolling in cash or running out? (And do you believe that? A “sense check” is an important part of the process)

At times like this, when normal service has been upturned it’s often useful to work out a sort of “burn rate” to help you understand how much cash you need to be taking per month in order to sustain your spending.

This is different from breaking even on a profit perspective; notably it will include those loan and finance payments. Note: if you’re looking at life from this angle you should think about setting aside some money for VAT every time you get a customer payment to avoid shocks down the road.

To find your burn rate you need to add together all of your regular spending over a month (or whatever timescale you choose). Compare this to the cash you expect to receive from customers (factoring in VAT!) and the result will show you what you expect the change on your bank balance will be. If the balance is reducing how long can you keep this up for? What can you do to slow down the reduction?

If the bank balance is increasing think about what you’re doing with the money; do you need to save money for future tax bills? Could you pay back lending faster to save interest?

Over the next couple of weeks I’ll be looking at what you can do to use the information that a cashflow forecast provides, but in the meantime if you’d like some help feeling confident about your plan for the future then give me a shout; I’m always here to help.

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