Cashflow management – Don’t bank on your bank!


Worried about cashflow management, an MD called us asking if I could send him copies of accounts which had been requested by the bank when considering a £10,000 overdraft extension.

(BTW – if you want to secure bank borrowing don’t leave it until you need it, secure it when you don’t need it.)

After some discussion about what the bank wanted and what problem the MD was really trying to solve it seemed to me that:

  1. the bank was asking the client to jump through too many hoops for too little help
  2. sales in the previous month were at a record high and the new month’s sales had started strongly
  3. the bookkeeper being on holiday over a month-end had caused a delay in sending out invoices

In short, the MD would be better off delivering increased sales and time would be the healer as far as cashflow is concerned.

The next day we met to review the numbers.  We confirmed that we had understood the financial position correctly and the MD went away with a spring in his step.

Cashflow management – pay attention and you can pay everyone else

There are two types of business. Those that don’t need a cashflow model because they’re well-funded and all the rest. And if your business is one of the rest (many are) then pay attention to cashflow! Which means you should:

  • have a realistic cashflow model that looks backwards, looks forward and is up to date
  • increase margins and profitability
  • make sure you get paid on time (check out GoCardless as a direct debit partner)
  • automate as much as you can because computers don’t take holidays

If your business needs to arrange funding because of its working capital cycle or to make a quantum leap forward in growth then that’s great. Formalise plans, build a forecast and a cashflow model and go to the bank or another lender or investor in good time to arrange the right funding solution.

But no one is going to lend money to a business that doesn’t have its own house in order. So if cashflow is tight, that’s probably a very loud message that other parts of your business aren’t performing well and you need to take action – NOW!

Michael –@bluedotmichael

Related links:

There are two types of business. Those that don’t need a cashflow model, and all the others.

My cashflow is a mess and I’m running round like a headless chicken

Know your numbers – don’t get lost in the fog

Blue Dot Consulting Limited