Shhh – don’t mention business cash flow
6 min read
27 February 2017
As a self-described man of words, not numbers, Simon Whitehead is not a fan of managing business cash flow – but knows how key it is at the start of a year.
January has never been my favourite month. The post-Christmas depression, the gloomy days and the pressure to give up the unhealthy lifestyle all make for a depressing time. However, since starting HRC Law, January has become even more hated due to the rate at which our hard-earned capital falls victim to the business cash flow problems many others also face.
Like most businesses, January is an expensive month with tax, VAT and rent payments all due in quick succession. This isn’t helped by the fact that it comes hot on the heels of a slow month in December, when everyone’s productivity is understandably lower than usual and there’s the Christmas shutdown when very little happens. All this means is that in addition to the rapidly disappearing reserve of cash darkening my mood, I also have no choice but to concentrate more than ever on the part of the business I like the least– business cash flow and accounts generally.
I completely understand the necessity of a good grip on business cash flow figures, it’s just that I can think of nothing worse. I always say to clients, as I get my calculator out in meetings, that my talent lies with words not numbers – but unfortunately when you’re trying to grow a small business successfully you have no choice but to embrace the numbers. If you don’t, then you are going to fail.
The obvious reality is that you need to deal with the numbers constantly throughout the year. You can’t just leave it to the month when you have a spike in your expenses to embrace the numbers. When you have more cash going out than coming into your bank account, that is when I tend to become fixated on business cash flow – so that I have the reassurance I need that everything will be ok.
It’s also the time of year when you discover how good your business cash flow modelling has been throughout the year, and how robust your predictions have been on the working capital front. It’s no wonder that poor strategic planning and financial management, as well as lack of financial resources, are often cited in the top reasons why SME businesses fail.
Like many SMEs, we are not big enough to justify a senior in-house finance role. That means that again, like most SME businesses, the day-to-day financial management of the business falls to me as owner and managing partner/director. Even with a great accountant working with you, I’ve found that I need to have the tools and discipline to do something I dislike on a regular basis.
We have great accountants that helped me to understand and adapt the various management reports that our accounts software throws out each month. In addition, they gave me a simple business cash flow spreadsheet which allows me to run the figures and every permutation of the figures on a weekly, if not daily basis.
Without a doubt this simple spreadsheet has saved us a fortune in fees, salaries and sleepless nights. In January, my team think I’m obsessed with this simple spreadsheet as it seems to get used on a daily basis to give me the peace of mind I need as I see large chunks of cash leave our bank account.
But throughout the year it’s an invaluable tool to demonstrate to the team the importance of good financial management. For us this means our solicitors are creating bills for the work they have done, sending them out and getting them paid. The use of the spreadsheet can very effectively demonstrate the disastrous consequences that bad financial management will have on our ability to survive and grow – something I’ve found effective in underlining my message in team meetings.
Hopefully we’ll get to a size when we can justify a senior in-house financial role to take responsibility for the day-to-day financial management of the business. Having said that, the reality is that as a business owner I am still going to need to fully understand and constantly deal with the finances of the business. I’m sure it won’t make January’s figures any less depressing, but it should mean I can spend less time working on the business cash flow and do something more exciting instead.