A Profitable Company Runs Out of Cash
As an expanding business, the team was finding it increasingly difficult to pay creditors. This meant that the Directors were spending far too much time managing cash flow during a critical period of growth, while their bank was understandably becoming less flexible, and as a result more demanding, requiring up to date accounts and regular updates, etc.
• An initial freeze was put in place on all non-essential expenditure, capital expenditure, and dividends, etc.
• Looking through the issues, we identified the key issues – slow/inaccurate sales invoicing and ineffective credit control.
• We implemented a system of raising sales invoices daily basis as opposed to the previous monthly invoicing.
• On larger jobs, terms of trade were changed to ensure upfront fees were invoiced and payment was received before work commenced.
• Weekly credit control reports were distributed to all salespersons and directors detailing all overdue invoices and any known reason for non-payment.
• The salesperson was made responsible for sorting customer queries on sales invoices.
• Credit control procedures were made more proactive and rigid. Once clients went beyond 14 days of the due date, the account automatically stopped, pending the intervention of the Managing Director.
• We implemented online live credit reports to monitor all clients.
• Bankers were invited to the business premises for an update.
• Straightforward and quick weekly cash flow reports were set up and produced first thing each Monday, forecasting cash for the following four weeks.
• The monthly management accounts pack was improved to encompass debtor days, creditor days, and rolling 12-month forecasts.
• The client list was reviewed to highlight any customers that were detrimental to the business, due to constant payment problems, poor credit rating, low margins, etc.
• The business no longer has issues paying its suppliers.
• The bank overdraft is now being used as intended and is not a permanent feature.
• The company is again focused on growth and achieving its goals.
Lack of Financial Direction
• We were invited to attend a monthly board meeting with a new client who was presented with pages of bland accounting reports which provided minimal accessible finance information to allow the board to manage the business effectively. Despite the board meeting taking over 4 hours, the business finance overview was scheduled at the tail end of the meeting leaving little time and indeed enthusiasm for the topic in hand.
• The monthly management accounts were totally revised, reducing the quantity and simplifying the key numbers. The first page communicates the fundamental three financial numbers in a graphically.
• Weekly one-page ‘short-term radar’ finance reports report on sales and cash flow forecasts.
• ‘Medium term radar’ reports offer comprehensive management accounts, and rolling forecasts, etc.
• Board meetings are now more effective and have halved in duration.
• Financial matters now at the top of the agenda.
• Financial business performance is now clearly understood and is instrumental in driving the business forward.
• There is now increased reliance on performance numbers throughout many aspects of the business.
• The increased prominence of the financial numbers has given impetus to producing an effective and achievable business plan.
No Financial Information Available
The board of a successful & acquisitive agency had not received any management accounts for some months, leaving them in the dark with regards to both existing and newly acquired businesses. Furthermore, the production of vital year end accounts was being delayed with the filing deadlines fast approaching.
• Together with the Group Financial Director a plan was agreed on how to bring up to date again all financial reports for the group.
• The plan was carried out, and further recommendations for improvements were made.
• Management accounts brought up to date.
• Statutory accounts were filed by the deadline.
Business continues to be successful and cash generative with strong finance reporting now in place.
Cash Flow Crisis
An agency had experienced big cash flow issues over recent months, which meant that the Directors had to spend most of their time managing suppliers and cash flow. Furthermore, management accounts had not been produced for some months, and the business was experiencing severe pressure from creditors as a result.
• A survival plan was agreed and implemented, pending the current finances being ascertained.
• We produced management accounts to determine the current position.
• We ascertained the reasons for the current position.
• Accessed options / updated the survival plan and implemented some key actions.
• The agency business has since been acquired by a third party.