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:
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.
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:
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 –
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
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