James Pinchbeck, Marketing Partner, Streets Chartered Accountants

It is widely reported that businesses are finding trading challenging with reduced working capital and access to cash placing even more of a strain. In the good times, it was easier for businesses to be more self financing and for external finance to be raised, this however does not seem to be the case today.

So what can a business do to improve cashflow? The good news is that there is no need, yet, to resort to putting your hands down the back of the sofa.

Focus on more profitable areas including customers, products or services

By identifying the more profitable areas of your business and concentrating on these as opposed the less profitable or loss making areas it is possible to improve the overall cash position.

Tighten up on credit control and avoid bad debts

If you offer credit, it might be a good time to look not only at checking the credit worthiness of your existing and new customers, but also adopting a more rigorous debt collection process. Remember, a sale is a gift until it is paid for.

Reviewing your remuneration

Unfortunately, it may be necessary to consider reducing the amount you take out the business. It may however be possible, with advice on remuneration planning, to maintain or even increase your drawings without affecting the burden on cash.

Review your stock levels

Often cash is tied up in slow moving, even obsolete stock. A review of your stock inventory and approach to stock levels can be a very effective way of releasing cash back in to the business.

Take credit where credit is due

If you haven’t reviewed terms with your suppliers, it might be good time to negotiate new and more favourable terms.

Reviewing your funding structure

Most businesses still tend to rely on overdraft and loans for finance, there are however a growing number of funding options available. A review of other funding streams, even use of business angels, helps to leverage additional working capital.

Maximise the tax reliefs available

Often without specialist advice businesses can find they have paid more tax than they may have needed to. A review of overall tax burdens and thought to the tax reliefs available can be a very effective way of helping to inject cash into a business.

These are just few ideas on how a business can generate cash and improve its overall position. For further ideas it is undoubtedly worth seeking the advice your accountant and tax advisers.

James Pinchbeck is the Marketing Partner with Streets Chartered Accountants, a top 30 UK accountancy firm. Telephone 01522 551200 or email info@streetsweb.co.uk| or visit www.streetsweb.co.uk|

 James Pinchbeck, Marketing Director, Streets Chartered Accountants

Despite what we might be led to believe, there still appear to be difficulties for some businesses in terms of their ability to raise bank finance, re-negotiate and retain existing facilities, especially for those that breach bank covenants. Unfortunately it is all too common to find businesses that are apparently unaware of the terms of their loan agreement. Some are without adequate security and are now being asked to provide personal guarantees. For some, weak trading conditions have given rise to a reduction by the banks in the level and type of funding available, increased margins on the cost of provision and increased arrangement fees.

The introduction by the government of the Enterprise Finance Guarantee Scheme is proving helpful for businesses that may be experiencing a downturn, but who are able to demonstrate short and medium term viability to secure funding - others still face funding short falls and problems. For such businesses it is undoubtedly time to turn to their accountant. Our experience shows that there are a number of ways in which we are able to help through early involvement and prior to any discussions you may have with your financiers.

The accountant's role initially would be to assess, with a commercial approach, your financial situation, the amount of finance needed and the best method and/or structure to secure this. Typically, most businesses only consider the more traditional provision of an overdraft or loan to finance their business. Your accountant should be able to suggest other forms including debtor book and asset finance and other forms of off balance sheet finance. By taking a good look at the management of your working capital and areas in which you might be able to improve profitability, there might also be opportunities for easing the liquidity burden. Your accountant should be able to look at other tax planning matters to see if there are opportunities for payment deferrals via the HMRC’s Business Payment scheme, and use of tax tactics for more tax efficient remuneration, even tax repayments.

The next stage is likely to involve the provision of financial forecast to underpin any funding requests. Whilst a fully blown business plan is not always needed, sound financial forecasts are a necessity. Again, experience shows that those prepared in conjunction with your accountant tend to hold a greater credence with financiers; as well as a likely successful outcome.

On going, the provision of management accounts, again prepared or validated by your accountant, provide not only reassure for your financiers but can also help, in some case, in attaining finance on more favourable terms. Since the start of the credit crunch we have seen a significant increase in requests by clients to provide their banks with timely management accounts, typically on either a monthly or quarterly basis. Their provision goes some way to demonstrate a business that is being tightly and well managed.

Last but not least, along with keeping you financiers up-to-date with the business, providing expedient year-end accounts gives your bank greater assurance and confidence in the people whose business they are backing.

The approaches outlined ultimately places you, the business owner, in greater control especially if you involve your accountant in discussions with your financiers rather than those at present who are finding that their bank is calling the tune.

James Pinchbeck is Marketing Director with Streets Chartered Accountants, a top 30 UK accountancy firm. Telephone 01522 551200 or email info@streetsweb.co.uk| or visit www.streetsweb.co.uk|

Please use the link below to access this month’s publication of the Monthly Summary of Business Conditions in the UK, as reported by the Bank’s Regional Agents.

http://www.bankofengland.co.uk/publications/inflationreport/ir12febo.pdf|

http://www.bankofengland.co.uk/publications/agentssummary/agsum12jan.pdf|

http://www.bankofengland.co.uk/publications/agentssummary/agsum11dec.pdf

http://www.bankofengland.co.uk/publications/agentssummary/agsum11nov.pdf|