Impending Boom, Beware Cashflow Pain
As we emerge from lockdown, with consumer confidence buoyed by vaccinations, for businesses there is a lurking threat. This is not a question of leadership, but of basic business management namely cashflow.
First here’s the good news. The Bank of England is projecting the fastest economic growth rate for 70 years at 7.25%. Even better the furlough scheme appears to have mitigated job losses. This helps consumer confidence. In March, the Office for National Statistics reported that the UK personal savings ratio was at its second highest level for 50 years at 16.1%.
It’s very likely that the economy will boom. And if history after similar events is correct, will do so for at least 2 years. Hurrah.
The Business Cloud
Businesses that have managed to survive could see a very strong upsurge in sales. Life might seem to have become very easy. But remember 2 business sayings:
- Sales do not equal profits, and
- Profit does not mean survival.
Most businesses have grasped the first; but many may question the second. The wave of high street collapses comes from the real cause of business failure: running out of cash. The business cloud is cashflow and the need to continue to protect it, even as business booms. It is no coincidence that many well-known companies have started in recession. They thrived and achieved greatness, because they continued with a cash-focused approach to business.
The Cash Management Solution
Covid has forced efficiencies and cuts. For any business as sales flow, so does the need to resource those sales to deliver the promised product to the agreed contract. Many costs come before the delivery and therefore before payment. A massive sales leap has a similar leap in the front-end costs.
All senior managers should therefore have on-line access to a weekly, monthly and quarterly cashflow forecasts.
- Weekly to keep abreast of what is going on and to see if a little saving here could be used more efficiently there. Or needs to be banked.
- Monthly to ensure all workers and accounts are paid on time without panic.
- Quarterly so that the VAT bill doesn’t knock the business sideways as a large lump sum.
- Live so that decisions are based on up-to-date information.
Pass It On
I didn’t train as an accountant and one of their tips I hate is to get paid early and pay your suppliers as late as possible. While this is a great way to keep cash in the business just consider the potential impact.
If you pay later than their terms, you affect their cashflow calculations and will waste some time answering their chasing phone call. They in turn might supply your next order late with its knock-on effects on your calculations. If materials are in short supply, I know who I would deliver to first- the company that pays me on time, no issues caused.
Positively managing your cashflow ethically is a good way to keep employees and supply chains happy as you ride the big waves of the boom.
- Coaching is a Waste of Time
- Who are you really?