smallbusiness.co.uk: Helping your business think big

Having a healthy cash flow will be crucial to the success of your business in 2010. Read the second instalment of our guide on how to ensure your money doesn’t dry up during the year ahead.

Centralise data

Robert Forbes, owner of Plutus Wealth Management, says having a customer relationship management (CRM) system is vital to driving more sales. ‘We spent £6,000 to £7,000 on it but it has more than made its money back. It’s meant that all our staff are working to their maximum capacity and aren’t wasting time doing unnecessary admin,’ he states.

Less is more

Staff may be more willing than you think to accept a cap on the hours they can work. ‘As the process of recruiting and training people can be very lengthy, we didn’t want to make redundancies and then have to re-hire once the upturn came,’ says Danny Cooper, manager of architectural practice RLT Built Environment. For Cooper, cutting the hours staff were allowed to work seemed the obvious option. ‘It gives us the flexibility of moving staff back up to full-time once things improve,’ he comments.

Separate bank accounts

Marcus Brennand, founder of multi-media company Digital Marmalade, learnt to manage outgoings after the dotcom bubble burst. ‘In the early days, our business got into trouble by having too much of a “spend-as-we-go” approach. Suddenly our cash flow dried up and we were faced with three successive months of bills to pay, which nearly made the company go under. Now we have a separate bank account just for bills so we won’t get bitten in that way again.’

Extend your terms

You could agree to pay a higher cost to a supplier for extended terms. This is obviously better for a cash flow blip rather than a long-term strategy, but it could work very well for getting you out of a hole.

Talk to HMRC

Don’t be in denial about your taxes. Launched last year, the government’s Time to Pay scheme allows companies experiencing temporary cash flow difficulties to defer their tax payments. Most businesses agree a repayment time of six months or less, but you may be able to negotiate a longer period. So far, 233,800 companies have used the scheme. While certainly useful as a tool to give your business breathing space, the danger is that another wave of companies will go under when this tax amnesty expires in 2010.

Go for the money

Working smart for your sales, instead of hard, is crucial for cash flow. Always focus on the most profitable customer, not the biggest, says Paul Daniels, director of Involved Investors.. ‘You need to go where the big fish are and then redeploy staff accordingly.’

Review pay structures

Marion Tapp, director at Tristar Oilfield Services, says reducing salaries was the only option left to ease cash flow. ‘We don’t have any frills as we already run a very tight ship and there were no other things to cut. But we didn’t want to get rid of our guys because we really value them,’ she says. Instead, the directors had frank discussions with staff, making it clear that either some people would lose their jobs or everyone could take a 20 per cent wage reduction. ‘In the end, everybody, including the managing director, took a cut.’

Do it yourself

Emmy Scarterfield, owner of Emmy Shoes, says she had to cut costs when the price of imports increased. ‘We had planned to relaunch our website, but when we got the quote back it was too expensive. Instead, one of our team taught herself web design and we created our site for free. What we have is a perfectly good interim solution and the costs were minimal.’

Price review

Go back to your suppliers to ensure you are getting value for money. Plutus’s Forbes says, ‘We have quarterly reviews where we identify cost creeps. Not too long ago we managed to trim back stationery expenditure by about 15 per cent.’ Andy Berrow, regional manager of Business Link in London, agrees with implementing such a process: ‘We helped one company review its telephone supplier and saved it 9 per cent by getting quotes and shifting to another operator.’

Stocking fillers

If you’re running a business that requires high levels of stock but want access to the cash tied to it, asset-based lending might be worth a look. Whether you are eligible for it will depend on the nature of your stock. Normally companies can get around 50 per cent in advance of the sale of the stock.

Cut out the middle man

Jim Aird, owner of motorcycle clothing company Scott Leathers, decided to bypass his wholesaler in a bid to save cash. ‘We now look to buy direct from the supplier wherever we can. By doing so we can save up to 50 per cent,’ he says. Aird maintains that he can source overseas suppliers without incurring punitive costs. ‘Because the government is so keen to promote exporting at the moment, we were given a paid flight to Brazil. While looking to build trade links, we’ll also actively seek new suppliers.’

Take an oath

Dave Breith, director of O-bit Telecom, says he now asks for personal guarantees from all the owner-managers he does business with. After implementing the policy last year, he says it’s worked well for guarding against bad debt.

Insure against bad debt

Trade credit insurance covers against the risk of non-payment due to your customers’ insolvency and protracted default, so can be invaluable in protecting your business. As many insurers have cut their policies severely due to an increase in company liquidations, the government recently extended its credit insurance scheme to enterprises that have seen their insurance pulled since October
last year. Visit www.businesslink.gov.uk for more information.

Refinancing

Transferring your debt from overdrafts to long-term loan repayments used to be a way to secure better repayment terms, but in today’s market the chances of negotiating a more favourable deal are slim to none, says Martin Austin, director at accountancy firm Tenon. However, he adds that if you are in a cash hole then it is still possible to arrange a repayment “holiday”. ‘This is likely to cost you, but may be a good short-term option,’ he says. Although it seems banks are not currently in the business of helping companies restructure their finance (at least not in a way that is beneficial to the company), there are still some useful facilities available, such as letters of credit, that will provide you with cash cover for payments. However, the banks will ask for a cash value of the sum you require, which can be anything from 20 to 100 per cent depending on your trading and lending history.