Taking charge of cashflow

In collaboration with business finance experts from Smith & Williamson and Barclays Bank, Southampton Science Park hosted an interactive panel session at the Axis Conference Centre on how to keep the cash flowing throughout your business in these difficult times.

Amy Harper, Associate Director – Business Outsourcing Services at Smith & Williamson, opened the conversation. She commented that, while many businesses created a cashflow forecast at the beginning of this year for a particular purpose (to apply for government support or funding, for example), a lot of businesses are failing to maintain it. “No-one knows what’s around the corner, so a working cashflow that’s constantly being maintained and updated is critical,” she said, highlighting the various online accounting systems and tools available that provide the necessary strategic direction without a huge investment in time.

Barclays Bank’s High Growth & Entrepreneurs Business Manager, Ian Jarvis, echoed Amy’s comments. He stressed: “Banks need to understand how cash works in your business. When coming to us for support, all banks will want to understand the mechanics behind your forecast - how did you put it together, do your assumptions make sense, and has it been effectively stress-tested?

He continued: “Mindset is incredibly important here. Start from the premise that everything will not just ‘be OK’. Now is the time to be super honest with yourself, to take a step back and think longer term about what you need to do to protect your business. The difference now is that you need to assess a much wider range of possible outcomes; it’s not all about Covid-19, there are other serious socio-economic problems that need to be factored in. There will be other pandemics and there’s also Brexit and climate change to consider, for example. Speak to your relationship manager at your bank – the more they know about your business, the easier the conversations will be.”

Kevin Parish, Associate Director – Restructuring and Recovery for Smith & Williamson, added: “Goalposts are changing constantly and quickly. Therefore, the critical element of building stress-testing into forecasts is to invest the time up-front to creating a system that is supremely user friendly and easy to update in multiple scenarios. Get help if you can’t do this in-house. This will help you to understand all the fundamental building blocks that make your business tick. Look really, really hard at what’s gone right and wrong this year and be honest – brutal even – with yourself about this. Use this analysis as an opportunity to pat yourself and your colleagues on the back for the good, learn lessons from the rest and weave these into your future planning.”

Open communication was a key theme running throughout this session, recognising that everyone in your supply chain is likely to be stretching payment terms right now but this doesn’t necessarily mean that it’s the right thing to do. While it may be tempting to push back payments to safeguard cash, it’s important to remember the knock-on effect of your actions. If you are squeezing your suppliers, then their access to raw materials or goods may in turn be lost – they may even go out of business - affecting the flow of goods and services to your business and ultimately impacting your own income. Also important is undertaking due diligence on new customers to ensure that they’re not introducing risk into your business and allowing you to set appropriate credit terms.

Maintaining a good relationship with customers and suppliers, keeping lines of communication open and honest, and doing what you say you will do will help avoid these scenarios, while building trust and giving everyone confidence in their own cashflow scenarios.

Credit control was highlighted as another essential interaction. Sending regular statements and invoice reminders before and immediately after due dates keep lines of communication open and ensure that any discrepancies are bought to the fore sooner rather than later. While nothing beats picking up the phone and understanding the reality of the situation, again, there are some really good cloud-based systems that will automate these processes.

Smith and Williamson’s Partner - Business Tax, Paul Duckworth, highlighted that HMRC will listen sympathetically and put time to pay arrangements in place if you are struggling. At the same time, he said: “Remember, it’s good to be in a tax paying position – it means you’re doing well! There’s a lot of speculation currently about how the Government is going to pay for this pandemic and whether tax reforms are on the way. They may well be, but everyone should realise that the only real way to raise money is to get the economy going again: if businesses are doing well, there’s cash in society and there’s a multiplier effect.”

The panel was asked what being a ‘lean and mean company’ meant to them.

Kevin commented: “It’s not about chopping costs out. It’s about efficiency, making sure that everything that should work for you, does work for you. Onboard new customers and deal with customer queries quickly and have systems in place to do this. Lengthy approval chains simply delay cash injections.”

Paul agreed. “It’s all about process,” he said. “From a tax perspective, make sure you’re not inefficient. Analyse your spend to ensure that you’re spending wisely on tax deductible items.”

Building on this, Amy said: “Spend cash in the right places, rationalise your choices and move forward as lean business. This doesn’t necessarily mean cutting back, as increasing spend can have a positive impact on the topline. It means making sure that every pound spent is earning its keep. One of the benefits of the pandemic is that it has given us the opportunity to step back and assess, so be prepared to pivot towards different income streams and refocus your marketing strategies and staff efforts accordingly. Rebuilding your company culture and knitting the workforce back together again so that they collaborate successfully again is key to efficiency moving forward. I think we will see stronger businesses as a result.”

Closing the event, Jane Holt, Business Development Director at Southampton Science Park, thanked participants and panellists. She reflected: “There were really interesting themes arising from today’s event and incredibly wide-ranging expertise on the panel that I’m sure we have all benefited from. A key take-away for me is that we shouldn’t blame everything on the pandemic if it’s not the pandemic’s fault! There are many other things going on in the economy and all businesses really need to consider an array of challenges if they are to run sustainable businesses in both the short and longer term.”