| Secrets to good cash management: • 1. Establish robust cash forecasting and reporting processes•2. Actively manage inventory and debtors •3. Re-look at procurement processes and authorisation levels 4. Challenge discretionary P&L and capital expenditure Above all, be proactive not reactive. This all sounds a bit motherhood and apple pie, but it surprising how few businesses focus on cash rather than profit. What proportion of your management reporting is cash flow focused compared to P&L? A T Consulting works with businesses to build robust weekly cash forecasting and daily reporting processes. The immediate benefit is managers are made accountable and cash becomes a business issue rather than a finance department issue, with a resulting cash flow benefit.
Robust 13 week receipts and payments forecasts updated on a weekly basis allow companies with little headroom to match the timing of their payments to their receipts, allowing the business to better manage the key supplier relationships. Monitoring the accuracy of previous receipts forecasts showing the cumulative level of previous weeks’ commitment snot only increases accountability but provides a benchmark against which to assess the risks and opportunities to current forecasts. Of course, businesses don’t want to get to the stage where they are treading a precarious balance in order to stay within their facilities: active management of inventory and debtors reduces the likelihood of having to walk this tightrope. |
Do you challenge raw material expenditure to ensure that existing stocks can’t be substituted? Most businesses aren’t prepared to sacrifice margin to liquidate existing inventory with most management bonuses being P&L related – many regret the lack of focus on cash. Having got a handle on when companies are going to pay people and how to quickly liquidate stock and debtors to maximise the short-term cash position, businesses need to look at ways to improve cash in the medium-term through a focus on future commitments A T Consulting works with businesses to re-look at procurement processes and authorisation and to challenge expenditure across the business How many people are authorised to spend money in your business? In most cases, too many: surprisingly the authorisation levels are often too low meaning that the wood can’t be seen for the trees. The longer-term benefit is a cultural shift where non-essential expenditure is carefully scrutinised and inventory purchases considered from the point of view of protecting cash.
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