Finding Cash in Difficult Times

Discussions around raising business finance often tend towards new sources of finance, bringing cash into the business from outside investors or lenders. Now more than ever, we feel that businesses need to look closer to home to find ways of generating cash. We frequently advise businesses who want to raise external cash, and often there are things which can be done internally which can minimise or eliminate the need for new external funding. Clearly the nature of the solution depends on the nature of the problem, but it often takes a fresh voice to ask some new questions.

A key message is that cash is very different from profit – in January 2007 Northern Rock reported increased annual profits of £588m. On 25th July it reported half year profits of £296m. Within two months it had cash flow and financing issues to the tune of £28bn and had been bailed out by the Bank of England. We don’t claim to have the answer to a problem of that size, but we have put together a top 10 of ways in which we’ve helped clients tackle cash issues:

  • Analyse the business – are there parts of the business which are more cash intensive than others and which are growing at present? Where is the current focus of efforts – what is the impact of that?
  • Take a dispassionate view of the activities – it’s not unusual for the “star” areas of the business to be very much part of the cash flow problem
  • Budget for cash as well as profit – how many businesses produce a detailed P&L budget with little or no thoughts for the cash impact?
  • Make cash a factor in pricing – rarely is cash flow a consideration when pricing and assessing new work. Most businesses do a lot of work on the profitability of a job, but what’s the cash impact?
  • Making a loss can help – getting rid of old stock below cost price may crystallise a loss but it can help cash flow hugely.
  • Consider shrinking the business rather than chasing turnover – a controlled shrinking can often release cash from working capital at a difficult time and give breathing space to recover and rebuild
  • Involve key stakeholders – primary suppliers and customers have a real interest in the success of the business – what can they do to help?
  • Involve the team – a feature of recent years has been the willingness of employees to make short-term sacrifices to support their companies, but they have to be informed and involved
  • Understand the facilities in place – some facilities can be ideal when a business is growing but represent a real challenge when turnover is lumpy or falling. Many companies don’t fully understand what makes their facility tick and the ways in which it needs to be managed
  • Finally, act quickly – restructuring and reshaping can be expensive and take time –there’s nothing worse than getting round to it only when the necessary cash and time has been used up

If your business, or your client’s business, is finding cash flow a challenge, we’d be happy to speak with them. Please contact us on 0141 243 4980 and we’d be happy to chat through the issues.

Neil Grimmond
About the author

Neil joined Craig Corporate in 2005 and has been involved with both corporate finance and business management assignments. Corporate finance projects have ranged from diligence to...
read more

23rd
Nov

by Neil Grimmond