Cash Builder

Practical Steps To Generate Positive Cash Flow

February 2013

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We hardly need to tell you…

… about how important cash flow is:

• In 2013, almost 100 businesses will fail every day

• Cash flow is one of the key reasons for those failures

• Even profitable businesses can easily run out of cash

• It’s harder than ever to get credit• Credit insurers pulling back

We work with businesses in trouble all the

time. For most of them, cash is the most

pressing issue. This is how we fix them…

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Managing Cash The AWS Way

We help businesses all the time who

are having difficulty with cash flow…

… and we have a tried and tested approach:

• Treasury function• Internal sources of cash (the five cash silos)• External sources of cash• Key indicator reports/tracking tools

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The Treasury Function:

Create a cash focussed culture:

• Make someone responsible• Make it their sole responsibility if possible• Empower them to make decisions• Consider incentivising this person• Cash days report

– Prioritise activities– Create a sense of urgency

• Friday afternoon meeting– 90 day plus debtors– Prioritising payments

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Internal Sources Of Cash - The “Cash Silos”

Five key areas where cash gets “stuck” in

most businesses:

1. Customers

2. Suppliers

3. Stocks and WIP

4. Capital Items

5. Profitability

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Silo 1 - Customers: Managing Your Debtors

• Aged debtor list, BUT• Categorise based on their payment history:

– Don’t need reminding: seek early payment in return for reward

– Need reminding but will pay: chase before due, sort out any problems/excuses. Get promise of date.

– Find excuses to not pay: put mistakes right, ask for immediate payment

– Lost causes: don’t waste time, tell them you want money, then outsource collection

• Sort out payment terms for future orders. Move existing customers forwards. Seek better terms from new customers.

• Consider factoring and invoice discounting

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Silo 2 - Suppliers: Managing Your Creditors

• Aged creditor list, BUT• Categorise based on how hard they chase:

– Not chasing you: let sleeping dogs lie

– Gentle reminders: agree deferred payment or other terms (in exchange for a reward – eg late payment bonus)

– Efficient but fair: pay as soon as you are chased (or have another supplier ready)

– Ruthless: find a way to pay critical creditors

• Sort out your credit terms for future business• Move existing suppliers backwards• Pay small but “irritating” balances• Make sure creditor days are greater than debtor days

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Silo 3 - Stocks and WIP

Stock• Useful stuff - reduce days in stock (eg Kanban)• Rubbish – get rid of it! Scrap/trade/Ebay• Don’t know – decision labels (sell/keep until)

Work in Progress• Work on sample materials• Put the engine in last!

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Silo 4 - Capital Items

Reduce spend and realise value for owned assets:

• Sell non-core assets• Sale and leaseback of properties• Stop discretionary spend• Asset finance

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Silo 5 - Profitability

Cash flow problems are a symptom of underlying

issues – ensure you are not a busy fool:

• Design the business to operate within its capacity

• Focus on high value adding customers• Focus on high value adding products• Make appropriate responses to market

conditions• Don’t chase turnover at expense of profit• Make appropriate savings in overheads

How do you do this? Use Profit Builder……

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External Sources Of Cash

Once all Internal Sources have been

utilised, consider the following:

1. Banks

2. Venture capital

3. Business angels

4. Joint venture partners

5. Other lenders (eg Foundation East)

You need to have a plan:• capable of gaining buy-in• clear and convincing profit and cash story

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Key indicator reports/tracking tools

Ongoing monitoring of activities and

progress is essential at board level:

1. Cash days report

2. Aged debtor report (incl. debtor days)

3. Aged creditor report (incl. creditor days)

4. Value-added tracking tool

5. Stock and WIP values (incl. stock t/o)

6. AWS Early Warning System

Ensure prominence is maintained at board

level and appropriate actions agreed and

followed up.

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To Recap…..

• Maintaining healthy cash flow is crucial• Today’s environment makes it harder

than ever• Treasury function: allocate and empower• Internal sources: exhaust these first• External sources: clear plan• Monitor

Don’t hesitate to ask us for more

information if cash flow is a serious concern

for you or for your clients.

© Assist With Solutions 2013 The reproduction or transmission of all or part of this document, whether by photocopying or storing in any medium by electronic means or otherwise, without the written permission of the owner, is prohibited. The commission of any unauthorised act in relation to this document may result in civil or criminal actions.

Assist With Solutions: 01473 569059

Email: james.davey@assistwithsolutions.co.uk

Web: www.assistwithsolutions.co.uk

Thank you and see you next time!!