Improving Cash Flow

Cash management is vital if a business is to grow and prosper. Profit is an important measure of how your business is doing, but without cash it will fail.

Growth is very demanding of cash. As orders increase chances are that stock and debtor levels will also increase. The most difficult credit crisis to manage is an unexpected one. Overtrading can often lead to the downfall of a potentially profitable business, so it is important that the risks are understood, assessed and managed.

Look at your working capital needs realistically to determine if you require more, or different, financing. Don't be over optimistic and make sure that you monitor the situation regularly. Is the rate of sales increase, for example, as good as forecast? Are customers paying up as quickly as predicted?

Introduce effective credit control systems to ensure prompt payment of outstanding invoices (see managing debtors). Examine your stock control systems. Could you purchase more effectively? Are you carrying slow moving lines? Do you have any surplus assets that could be sold to improve profit and cash flow?

Review your tax and VAT situation to see if there are any opportunities to reduce costs - for example, if you make mainly exempt with credit supplies and are repaid VAT on a regular basis you could improve your cash flow position by adopting a monthly rather than a quarterly return.

Ensure that costs are kept in check, but remember that while short term savings in some areas may initially appear attractive, they may lead to significant problems in the longer term. Cost reduction without sufficient analysis is a common feature of businesses that fail to survive.

Grant Thornton undertakes a number of reviews for clients to help ensure that the business is running smoothly and that cash management controls are as effective as possible. These include:

• an internal audit review - to provide assurance that systems of internal control are reliable, appropriate and working effectively.
• an application review - to assess whether the controls within a specific application --for example a Stock Control System -- are adequate.
• a risk assessment - to rank risk factors in order of importance.
• an assurance review - to provide an independent assessment of the adequacy of Information Systems.