Growing pains

I warned companies earlier this year not to be come a victim of the expanding economy, but after a recent conversation with a client it’s worth revisiting again.

Business owners are often under the impression times are tough and cash is tight initially in the early days of their new venture, but once the sales start flowing the pressure will ease considerably.

This may be true for some lucky business, but there are many more examples where expanding companies have been a victim of their own success.

Take note of the following and you will certainly ease the growing pains in your business:

• Don’t forget to invoice your customers. A basic, but very real, issue as people become so busy dealing with orders they actually forget to send the customer an invoice.  If possible, incorporate invoice generation somewhere into your order delivery system.

• Once you’ve sent the invoice, make sure you chase the debt. It’s a fact of life that most customers don’t pay you without being asked, so get used to the fact that you need to have those conversations.  If you don’t like chasing debts, then outsource the task to a specialist.

• Manage your suppliers. As much as you’re chasing your customers, you’ll also be receiving numerous phone calls from your suppliers all asking for the money you owe them.

1. Don’t pay before the debt becomes due.  Why else would the supplier give you credit terms?
2. Ask all suppliers for extended terms of credit.  This is likely to be more successful where you repeat order and have a good payment record and relationship with the supplier.
3. If cash is particularly tight communicate and be honest.  Suppliers don’t like being ignored, and don’t like being told something that it isn’t true when you owe them money.

• Manage your stock. If you’re a retailer, or someone involved in manufacturing or construction, you’ll be buying more stock to meet demand of your increasing sales.  It’s easy to lose control of the stock.

1. Don’t order too much stock.  You’ll still be holding it when the supplier needs paying for it.
2. Likewise, don’t order to little.  You may need to buy quickly at a higher price in order to meet customer demand.
3. Manage stock loss and damages.  This can potentially devastating to the long-term health of your business, so make sure you implement systems to eradicate losses and damaged stock.

• Manage your staff. For now it may be just you, but as your business grows, then the number of staff you employ will increase.  Make sure you’re new team are as keen as you when it comes to cash flow.

• Do an investment appraisal before buying new assets. Before you’re business signs the loan agreement and purchases the new asset, make sure you’ve worked out exactly what the total cost of the purchase is, and how (if) sales and profit improve as a result of the new asset.

• Produce a cash flow report on as part of your management information. Daily, weekly, monthly… whatever works best for your business, you need one.  Logging on to your online bank account whilst holding your breath is no way to manage the cash of your business!

If any of the above sounds familiar, please get in touch.

Martin

www.mymanagementaccountant.co.uk

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