McLenan Corporate

Cash Flow Management

Cash flow management is a crucial aspect of any business and it is important to monitor it closely particularly when the business is financially distressed.

More than a third of small and medium-sized enterprises (SMEs) cite issues with cash flow as a barrier to their growth and cash flow problems are a major contributor to small business failures. Proper cash flow management can help ensure a business is equipped to navigate times of uncertainty and, in the long term, give a boost to accelerate growth.

Cash flow?

Cash flow refers to the movement of money in and out of your business in terms of income and expenditure. A positive cash flow means that more money is coming into the business than going out allowing your business to settle its bills and invest in growth. A negative cash flow means you’ll need to find an alternative source of income to be able to pay off debts.

If you want to work out the net cash flow, you just add up all your cash payments over a set period and take that away from your cash receipts. If your business is distressed, I would recommend monitoring it closely over a thirteen-week period.

While your turnover figures are healthy and that gives you confidence that your business is doing alright, it’s the cash flow that offers a better awareness of how well your managing your business finance. As the old saying goes – turnover is vanity, profit is sanity and cash flow is reality.

What happens if you don’t keep on top of your cash flow?

Monitoring your cash flow properly ensures that there are no surprises, failure to do so puts your business at risk and could lead to a range of different problems.

Some common issues that may be affecting your cash flow include:

Over ordering – if demand for your products change you could be left holding too much stock and unable to convert it to cash.

Lengthy payment terms – this can leave you with long stretches when no money comes in and there is also the possibility of bad debt, when customers don’t pay at all.

Overspending – remember winning a client doesn’t give you a free rein to go on a spending spree, wait until they have actually paid you.

Overtrading – Just as with stock, it’s easy to get carried away with your business outlook after securing a big order. Employing more staff or expanding to more locations might seem like a good idea to grow your business, but you need to have the cash flow to back this up. While your profits can vary, your rent and salaries won’t, meaning that you need to be able to withstand short term pressure on your finances if you want to grow your personnel and premises.

Insolvency – if you’re unable to pay your debts as they fall due your business is technically insolvent and this could lead to formal insolvency proceedings, if you wish to stay in control, it is important you seek advice from an insolvency practitioner as early as possible. It is very important you understand the personal risk in continuing trade an insolvent business.

Improving your cash flow

Improving your cash flow can be done by increasing income, improving profit margins or by reducing debt repayments to creditors through negotiations.

The obvious way to increase income is to increase sales and revenue, this can be done by expanding your customer base, launching new products or services, or increasing prices.

Improving profit margins can be done by reducing costs, such as cutting back on expenses or negotiating better deals with suppliers.

Reducing debt repayments to creditors can be done by negotiating payment plans or looking at funding options.

We specialise in dealing with creditors such as HMRC and can negotiate payment plan arrangements on your behalf or look at funding options to allow your business some breathing space.

How can McLenan Corporate help?

With extensive experience in trading businesses within an insolvency processes we are well placed to advise on how to improve your cash flow and can advise on the options available to you.

It is important you don’t ignore the early warning signs as radical steps may be required if your business is to recover.

Cash flow problems don’t need to signal the end, if there is a viable business it may be possible to stabilise trading and gradually improve cash flow, come and have a chat, our initial advice is free and we would love to help you manage the crisis.

Recieve a no obligation Option Review from us that helps you make the right decision for you and your company moving forward.

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1 Union Street
Saltcoats KA21 5LL

McLenan Corporate is a trading name of McLenan Corporate Solutions Limited, 1 Union Street Saltcoats KA21 5LL. Company Number SC651445.

Margo McLenan is licensed to act as Insolvency Practitioner in the UK by the Insolvency Practitioner Association.

Insolvency Practitioners are bound by the Code of Ethics when carrying out all professional work relating to an insolvency appointment.