1. Understand your cashflow cycle – having clear visibility and understanding how cash flows into and out of your business is important, particularly when your business is growing rapidly, and your working capital can be stretched. “Cash is vital for your business, and if your business is important to you, you need to find time to look at your finance on a daily basis to get a real understanding of cashflow and enable you to make better decisions.” Nadia Hossen Mamode, VCCA.
2. Forecast – creating a realistic cashflow forecast and regularly updating it as information flows through can help inform your strategic direction. “You have to take a prudent view without squashing enthusiasm or stopping the magic from happening. Forecasting may show that you need to pursue growth in a different way, for example.” Peter Charles, Pai Skincare.
3. Identify gaps – having both historic information and forecasts can help you identify gaps and potential gaps in your cash, which may mean adjusting your plans or looking for external funding to plug them.
4. Scenario plan – look at all possible scenarios, from the best to the worst case possible and consider the impact of those on your cashflow. “People tend to get very enthusiastic about growth forecasts, but actually being a little pessimistic when it comes to cashflow forecasting can help control.” Claire Castelli, HSBC UK.
5. Share knowledge – keeping communications open across the business can help you manage cash more effectively and include all information in planning and forecasting. For example, if sales are planning to run a discount – how will this affect payments and stock?
6. Utilise technology – there’s a host of software and apps available to help businesses plan and forecast and many smaller and newer businesses are fleet of foot in adopting these. “You can start off simply with a spreadsheet if that feels more accessible – the key thing is to start monitoring your cashflow. But technology can make the process much more efficient.” Nadia Hossen Mamode, VCCA.
7. Have a contingency plan – as the pandemic showed us, there are unknowns that you simply can’t plan for, but having considered cash protection measures, you’ll be better placed to bring those in quickly to help your business through any tough times. “Faced with uncertainty and no precedence, we went into our cash protection measures early on. That saw us time shipments to customers to coincide with when they’d paid their last bill, talk to our larger suppliers to negotiate settlements, and move to a four-day week. The measures only lasted 6-8 weeks as direct to consumer sales picked up, but they were important.” Peter Charles, Pai Skincare.
8. Review and update your forecasts – your forecasts are living things, so regularly updating them and feeding in information can help create a more accurate picture and outlook. “Make sure you’re reconciling information from your bank accounts with your forecasts, so you can understand where any differences lie and learn as you go along.” Claire Castelli, HSBC UK.
9. Strengthen your relationships – stronger relationships with customers and suppliers can help optimise cash flowing into and out of your business and support honest and open negotiations that can benefit all parties. “The growth of your business is in the best interests of your suppliers too, so if you need to access cash by increasing payment terms in order to fund that growth, identifying your top three suppliers and asking them for support can work.” Peter Charles, Pai Skincare.
10. Manage your supply chain – managing your cashflow cycle can help optimise your cashflow more effectively and can be crucial to supporting rapid growth. “We negotiated short 7-21 day payment terms with our buyers and longer 45-day terms with our suppliers, which meant that we could turn cash around very quickly.” Bav Samani, Hype.
11. Consider the effectiveness of your growth strategy – analysing the cost of different growth strategies can help you understand both their potential for long-term profitability and their cost to cash. “By attending to costs, pricing, sales and margins, you can think about where growth can bring in the biggest returns. Growth in sales, for example, can have a big impact on costs if not handled properly.” Peter Charles, Pai Skincare.
12. Spread your risk – diversifying your business can help protect against shocks and any downturn in a particular area, which can mitigate the impact on your cash. “Have at least five or six different avenues of cash coming into the business. When wholesale fell away during the pandemic, our website kept cash coming in, for example.” Bav Samani, Hype.
Cash is essential to help your business thrive and grow and to be Tomorrow Ready. To find out more, visit our Insights hub at https://www.business.hsbc.uk/en-gb/tomorrow-ready-programme