In the first instance, a poor cash flow can be attributed to either the timing of payments and receipts or on the actual level of cash generated by the business. Cash timing issues can be relieved by either extending terms with suppliers, reviewing and enforcing customer payment terms, tight cash budgeting and through the use of debtor finance to accelerate cash receipts.
If the timing of cash flows is acceptable but the business is failing to generate sufficient cash, this can be attributed either to a lack of revenue or high cost levels. Revenue growth is constrained by either marketing factors or the amount of working capital available to the business. A refinance may be needed if working capital is your constraint. If your growth issues are more marketing related, review your “four p’s” of marketing (pricing, product, place and promotion). Many good blogs and web-sites offer helpful marketing hints. You could start by visiting Microsoft - http://office.microsoft.com/templates/ - here you will find marketing plan templates that will help you step through the marketing planning process.
High costs also fall into two categories – high fixed costs (overheads) or high input/ variable costs that result in resulting in low margins. A third party cash injection can improve your bargaining power with your suppliers to drive down the cost of your purchases, thereby improving your margins. If fixed costs are an issue, you made need to consider restructuring your business – and again, you may need funding to help you through that process. But additional finance or formal restructures do not by themselves solve problems – they are simply mechanisms for buying time and negotiation leverage.
All of the above is fairly intuitive – but even the simplest of tools are often effective in helping business managers to prioritise their actions and thereby maximize the effectiveness of their efforts.Stay tuned in upcoming weeks when we tackle the detail.
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