QUESTION: I own a small business which is having cash flow problems. Have you any advice?
STEPHEN KANE, business development manager, Ulster Bank, replies:
Review your credit management system and consider how it can be made more effective. Review the letters, documents, methods and schedule you employ.
Can you amend the credit timetable? Have you a dedicated person in charge of chasing debts?
Ensure your credit terms are clear to customers and staff alike. Send each customer a statement outlining the terms along with your favoured payment methods. Clearly underline your late payment and interest penalties.
Incentivise your debtors by offering clear and attractive early payment discounts such as five percent if payment is received with 10 days. Consider offering gifts or bonus programmes.
Buy time by maximising your use of supplier credit. Negotiate as many days as you can, remembering that suppliers will often oblige valuable clients. Schedule payments for the last possible moment. Your accounting software will help you organise a payment timetable.
Speed up your time to market. The quicker you can turn raw materials into a saleable product or the more efficiently you can perform a service, the lower your overheads and the sooner cash flows into the business.
Shift that old stock, even if you have to take a hit, because cash is usually more valuable to your business than hard-to-sell merchandise.
Consider invoice finance where the bank may be able to release up to 85% of the value of your unpaid invoices depending on your line of business.
QUESTION: I am the owner of a small business in desperate need of additional finance. I have heard about new government schemes to help me, how can I benefit?
ANDREW HARRIS, senior manager, Corporate Restructuring, ASM Horwath, replies:
Last month the government announced a number of measures, including three new initiatives.
The Working Capital Scheme is for innovative, viable and growing companies that are finding it difficult to access funding.
The Enterprise Finance Guarantee Scheme is for smaller, viable credit worthy firms hit by the downturn.
The Capital for Enterprise Fund is for businesses with high levels of debt that have exhausted traditional forms of financing.
The finer working details, including start dates, have yet to be released but for the latest information check the Department of Business, Enterprise and Regulatory Reform website, www.berr.gov.uk.
In addition, there are other options, such as the Small Firms Loan Guarantee Scheme, Venture Capital and Invoice Discounting which you may wish to consider.
When trying to raise finance, you need to ensure you have a robust business plan to present to prospective lenders.
This should include important financial information, such as how much money you need to borrow, how the money will be used and when it will be repaid.
If you require further help, speak to your professional advisors and your existing bank, who should be up to date with the latest information.
QUESTION: My small business has to make a number of cut backs in the current economic environment, including a 50% reduction in the marketing spend for this year. How can I ensure a small budget is put to use effectively?
ENDA McSHANE, CEO of Spirit Marketing Group replies:
It’s common for businesses faced with a decrease in sales to cut, or in many cases, completely eliminate, marketing spend.
However, as marketing is a key sales driver, taking appropriate action now is an imperative not expendable activity.
Unless you are spending money to either attract, acquire or retain customers you are wasting spend, evaluate everything against achieving one, two or all of these of these objectives.
It’s unlikely that applying your 50% reduced budget to the same activities will provide an efficient return.
Rather than spending half (or more) of your budget on advertising, developing smaller scale integrated techniques, such as direct mail, with a tailored message targeted to key audiences can often provide a highly efficient return on investment.
Don’t forget about your existing customers — a common business anecdote is that it takes twice as much to acquire new customers as it does to retain existing customers.
Rewarding customer loyalty and encouraging repeat custom is therefore extremely important. A referral from a satisfied existing customer is also one of the cheapest and most credible methods of gaining new business.
Also take some time to assess how your customers’ needs may have changed and also how your competitors are reacting, which will provide important insights.
Finally, online and digital marketing is an evermore important component to modern marketing approaches. It’s also one area that doesn’t have to cost a lot to invest in.
At the most basic level, and at a time when companies are succumbing to the credit crunch on a daily basis, it is important to keep your website up to date, so that if prospective new customers stumble on to your site, it is clear that it’s business as usual for you.
Other low cost digital techniques include, signing up to business networking sites, such as, www.linkedin.com and Facebook or creating one page e-shots to send to customers.