Cashflow is critical to business success

My background

I qualified with ACCA in 1998 and from 2001-2010 worked with large telcos building business models and cash flow forecasts for new ventures, growing business units, whole divisions, etc. We built complex models, with complex assumptions, had to deal with shortfalls and surpluses but all from the relative safety of a large corporate with a strong balance sheet, a professional treasury function and easy access to capital.

Setting up on my own

Since 2010, I’ve provided part-time finance director services to rapid growth start-ups and early stage companies who are far more exposed in terms of their cash flow and the limited sources of finance available to them. If they get it wrong, the consequences can be painful, if not terminal. I have found it remarkable how many business owners struggle with cash flow, how to forecast it and how to improve it. It normally requires management accounts, a clean balance sheet, structured data and thinking, an understanding re money flows in and out and separation of working capital from other less frequent but significant cash flow occurrences (e.g. VAT bills, corporation tax, long term creditor repayments, new asset purchases or significant one-offs e.g. recruitment fee). But once converted, business owners can’t live without some visibility of their cash flow and improving it.

The importance of cash flow

Cash flow forecasting can become out-of-date very quickly and so presents a continuous challenge. For accountants and finance professionals, like myself, there needs to be a clear cost / benefit for the time and cost to businesses forecasting it. There are some slick online tools available but whether you use one of them or Excel, every business is different, has different income streams, revenue and cost bases, working capital cycles, etc. Improving cash flow isn’t a matter of just driving more sales.

Working with Growth Street

Since 2014, I’ve been working with Growth Street; It has been a real eye-opener for me given my background and experience with SMEs. Their alternative lending platform provides £30K-150K credit lines to growing businesses. We are staggered how many profitable and growing businesses don’t forecast cash flow at all, or allow their balance sheets to become inefficient, or build up cash deposits just to cover unquantified potential contingencies instead of using cash to accelerate their growth plans.

As a result of these inefficient practices, we’ve also found that some businesses also admit to paying over the odds for finance when they look for it – by borrowing more than they need, for longer than they might need it, paying more than they should (interest + fees), factoring when they don’t need to and increasing the level of financial administration in the business.

Free tools to help businesses and accountants

More specific to borrowing, we also created a free tool at http://www.growthstreet.co.uk/apr  which helps businesses understand the true cost of finance. With no easy metric defined for comparing price (like an Annual Percentage Rate (APR) on consumer products), businesses need to carefully scrutinise finance deals and take interest and fees into account. Sometimes these are buried in the terms and conditions or the true cost is linked to future activity (e.g. factoring sales invoices). Growth Street’s simple price discovery tool helps businesses compare both the finance charges, both on a total cost of credit (TCC) and an equivalent APR basis.

Growth Street is partnering with accountants

Growth Street are keen to hear from you about improving cash flow and help your client base get access to finance on the best possible terms.  Please do send us your feedback!

Written on in Business Insights