Brendan Flattery, managing director of Sage’s Small Business Division, answers some key questions about the importance of maintaining healthy cashflow.
“Any successful small-business owner will tell you that healthy cashflow is critical to the smooth running and growth of their business. It’s been a challenging time for all businesses recently, regardless of size, and one that will have a lasting impact on the way businesses structure and manage their operations. One of the key lessons that many small businesses have taken from the recession is the importance of healthy cashflow.
“Put simply, cashflow is the movement of money within a business, but this seemingly straight forward concept can have detrimental effects if badly managed.”
“Healthy cashflow is vital for all businesses, but the consequences of not managing it effectively can quickly have a massive impact. A small business can only survive for a limited period with a negative cash flow. Ultimately, the business will end up insolvent, which means it will fail because it won’t be able to pay its creditors.”
“Cashflow forecasting software is an important business tool that can not only show payment patterns and forecast the year ahead, but also highlight re-occurring late payments.
“It’s been widely reported that most failed businesses have closed because of problems caused by inefficient cashflow management rather than anything else. If small businesses put into practice the correct processes they will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues early enough. Then they can take action to avoid any anticipated downturns. More effective cashflow management will help stabilise the business, as well as ensure the business emerges from the recession in a stronger position and cash positive.”
“Julia Boggio Photography is a Sage small business customer. The business has experienced first hand why accurate cashflow forecasting is a must. They used Sage 50 Accounts forecasting tools. MD Julia Boggio says:
‘When I was reviewing our cashflow forecasts in November of last year, I could see there was a dip due in February. We reorganised our finances, cutting down on advertising and came up with an alternative contingency plan, which we put in place. This ensured we were well positioned to account for the dip and even enabled us to have a better February than the previous year.”
“More than half of the 2,000 small businesses polled by Sage in our monthly Omnibus survey said they had been impacted by late payments over the past year. The Department for Business, Innovation and Skills reported that more than 4,000 businesses failed in 2008 solely because of late payments.
“It is critical that start-ups and all other businesses to remain aware of exactly how much money they are owed and when payments are due. This helps to prevent late payments in the first instance. However, if they do occur, good management can ensure that they do not have a damaging effect on the business’s overall cashflow. These are all aspects that business accounting software can help you get to grips with.”
“Make sure all your employees – if you have any – are kept informed about the state of the business’s cashflow. This will hopefully prevent them from making purchases your business cannot afford. At times you might be waiting for a large invoice to be paid, so you may have to put spending plans on hold.
“Create accurate cashflow forecasts for the year ahead. It will enable you to plan for the future. Forecasts allow you to identify potential cashflow crises, for example, be identifying periods when your costs exceed your revenue. At such times, your business might need to seek financial help. To be fore warned is to be fore armed.”
Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland
Things are stacked against smaller enterprises in so many ways when it comes to winning business. Getting that all-important first customer, having the financial muscle to fulfil sizeable orders and being 'allowed' to bid are all factors that SMEs face or have faced.
It's crucial to focus on the areas of strength within a business. There are many and maybe we can discuss others in future posts. But for today, I wanted to raise the question of cold-calling: often a necessary evil. I'm lucky because my calls get screened by colleagues, but occasionally a salesperson gets through and I sometimes accept that the caller is simply doing their job, so I take the call and listen. 'Listen' being the operative word, because invariably these callers talk at me with little consideration for me the person on the other end of the line.
They tend to all make the same mistakes. My name is on a list of thousands, and the caller is just working down the list. Twenty seconds earlier they did not know I existed, and now they are trying to sell me corporate hospitality at Wimbledon. They don't know what we do as a business. And they don't have the most basic grasp of whether I have any requirements or even whether I can spare a couple of minutes to hear what they have to say. And when a stranger asks 'How are you?', you know it is a tele-sales person.
How can this help a small business? Of course, some SMEs need to do cold-calling. But they are probably not doing it in call-centres. And they are probably not selling hotel rooms today and IT solutions tomorrow. So they should know their products inside out. They should also have some personal experience of how people use, or benefit from their products. And in small teams, perhaps even with the owner/manager or MD sitting with them, can prepare their calls, discuss and agree the sort of questions that should determine whether the prospect might be interested. Some call centres work on a numbers game. Bash the calls out and the sales will come in eventually. But SMEs can offer something in the way they sell that mirrors what they hope to deliver - a more personal service.