• Growing a business
    • Optimising sales

Managing cash for growth – key takeaways

  • Article

As businesses start the shift from survival to recovery, effective cash management is essential for growth to be sustainable. Our panel of experts, including Mark Berrisford-Smith, Head of Economics, Commercial Banking at HSBC UK, Laura Bounds MBE, Owner of Kent Crisps and Curd & Cure, Nadya Hijazi, Global head of Digital, Global Liquidity & Cash Management at HSBC and Nathan McCarthy, Director of Cash and Working Capital at Interpath Advisory, share their experiences and insights in to how businesses can optimise cash management and secure growth. Here are their key takeaways.

1. The economic outlook

Mark describes a positive picture for the UK economy, with growth in Q2 2021 picking up faster than anticipated and growth forecasts could possibly be revised upwards. Recovery will be largely driven by consumers and households, with savings accumulated during the pandemic providing significant firepower. Government concern to avoid a repeat of the post-financial crisis experience of businesses being reluctant to invest, has seen the launch of the super deduction scheme, offering tax incentives to encourage investment in fixed assets.

“We anticipate a lively business environment as businesses adjust to a new normal. Supply chains will be under review, restructuring will take place and assets will be transferred,” he says. “Our hope is that this will create an economy that emerges as more dynamic, more productive and faster growing in the medium-term.”

One of the biggest decisions facing many businesses is around the best time to pay back the bounce back loans or CBILS they may have taken on, taking into account whether all the funds have been used, affordability, viability and so on.

Laura Bounds MBE | Owner of Kent Crisps and Curd & Cure

2. Key challenges facing businesses moving from survival to growth

“Covid-19 was an accelerator of change and forced discussions around effective cash management up the agenda,” says Nathan. “Now businesses must work out which aspects to maintain and which to unwind and how that will impact their business. It makes forecasting particularly important.”

He sounds a note of caution for businesses keen to push ahead with growth. “Visibility is crucial. The key metric to track is your net working capital as a percentage of revenue. Ideally, as your business grows, we’d want to see that ratio remaining flat, if not reducing. If it’s increasing, it means you’re absorbing cash and that will place pressure on the business’ liquidity requirements.”

The ending of support schemes

The ending of the government schemes that have been in place to support businesses in recent months also presents a challenge and that says Nathan, makes forecasting even more important. “You need to consider whether your cost base is adequate for the new reality of furlough ending – how will that affect your liquidity?”

“One of the biggest decisions facing many businesses,” says Laura, “is around the best time to pay back the bounce back loans or CBILS they may have taken on, taking into account whether all the funds have been used, affordability, viability and so on. It’s about maximising the data available and taking a pragmatic view of what the landscape might look like in the next six months, a year, or three years.”

3. Pandemic learnings leading to more effective future cash management

Despite the challenges businesses faced during the pandemic, there were also big positives and the focus on cash and the changes businesses have made to monitor and maintain working capital can help boost resilience.

“A lot of businesses moved online,” says Nadya, “and because they pivoted, they were increasingly looking for digital solutions to support that. They were looking for ways to manage payments and collections more effectively, to streamline data and reporting and integrate that with their accounting software and to create a good oversight of what’s happening in a fast-paced digital environment.

“Open banking proved a huge enabler of better cashflow management, allowing secure methods for companies to use data from banks into their own systems, and we’ve seen a huge growth in open banking journeys as businesses recognise the importance of having that data available.”

Optimising data

Many of the processes adopted by Laura’s businesses to manage the immediate impact of the pandemic on working capital, such as enhanced reporting, have proved so beneficial that she’s keen to maintain them as the business moves forward. “I think for many businesses, the pandemic has kicked us into doing things we may have procrastinated over in the past, like improving our data and reporting. Our KPIs and the weekly dashboard have become much more detailed and analytical and are now a core part of the business, and we view data in a different way, which is really positive and something we want to build on.”

Nathan agrees: “That’s something we’ve seen consistently with clients and it’s something that feels normal now, which is exactly where businesses need to get to. Ensuring that remains in the business as BAU, will underpin the foundation for growth.”

Breaking down the silos that often exist in businesses, and getting everyone on the same page, so that all areas are tracking the right KPIs and watching the same data, can help strategic decision-making and optimise cashflow across the business.

Nathan McCarthy | Director of Cash and Working Capital at Interpath Advisory

4. Future-proofing your business recovery

When it comes to ensuring your cash management helps build a sustainable and resilient business, maintaining the discipline developed during crisis and survival can make a real difference. “It’s okay to be excited by the prospect of recovery and to take advantage of opportunities but keeping a close eye on your P&L and your balance sheet and taking decisions with that holistic view, is important,” says Nathan. “By strengthening your balance sheet, you can free up cash that can help you grow or mitigate uncertainty.”

Cash optimisation and growth

“Businesses were perhaps a bit naïve previously,” says Laura, “and perhaps the importance of safeguarding cash wasn’t a priority when sales were pretty much guaranteed. No-one expected sales to just stop, but that made cash reserves suddenly very important and that’s a new mindset where cash reserves equal safety and security.”

But that doesn’t mean holding back on investing for growth as long as the decision-making process is sound, says Nathan. Transparency, visibility and control are key principles, he continues. “Information will arm you in the best possible manner to make the right decisions. Having a robust cashflow forecast in place, that takes both a short- and long-term view, and scenario planning against that, can show the impact of those scenarios on your cashflow and liquidity profiles.”

Working together

Ensuring your suppliers are part of your growth journey will also support your working capital cycle. “Treating your suppliers as part of your team and building trust into those relationships is important,” says Laura. “You need to think creatively, rather than just focusing on payment terms as a way of optimising cashflow.”

“Breaking down the silos that often exist in businesses, and getting everyone on the same page, so that all areas are tracking the right KPIs and watching the same data, can help strategic decision-making and optimise cashflow across the business,” agrees Nathan.

Embrace innovation

The crisis has also accelerated the uptake of digital technology with the potential to revolutionise cash management, control and visibility. “Businesses seeking to future-proof their cashflow management should be leveraging open banking and their digital capability,” says Nadya. “The pandemic has removed some of the fear factor in adopting new technology and created a mindset of trying new things. Businesses need to keep that openness. In Asia, there’s a growing focus on APIs and integrated platforms with the growth of marketplaces in particular amongst business banking customers, and we’re starting to see similar discussions here in the UK, for example.

“A lot of the innovation we see today, such as open banking, came as a result of the 2008 recession and the solutions that emerged to help people through that. We’re seeing that now, with many financial institutions and accounting software providers innovating around cashflow analysis and tooling to support companies dealing with the pandemic. Businesses need to leverage that support to help boost their cash management capability.”

To find out more about how to get your business Tomorrow Ready, visit our Insights hub at https://www.business.hsbc.uk/en-gb/tomorrow-ready-programme"

Related articles

Work smarter not harder

Getting your cost base under control can help you build a leaner, more efficient business. From suppliers and customers to ways of working and operations, our quick video looks at how you can interrogate your costs and identify savings.

Security and control of cash supports Rullion’s growth plans

As part of its move to HSBC, Rullion unlocked the benefits of HSBC’s cash management solution, providing the efficiency, visibility and security the business needed to enhance its operations and provide a strong platform for growth.

HSBC’s integrated Cash Flow Forecasting tool helps Harvey Nash increase accuracy and efficiency

A ‘manual’ approach to cash flow forecasting at a business based across multiple countries was hampering Harvey Nash’s ability to generate fast and accurate reports. Implementation of HSBC’s Cash Flow Forecasting Tool, hosted within HSBCnet, proved just the solution to deliver on those requirements – as well as providing multiple other benefits.

Need help?

Get in touch to learn more about our banking solutions