Belfast Telegraph

Review management of cash flow


Balance sheet management is useful for identifying where cash is tied up
Balance sheet management is useful for identifying where cash is tied up

By Andrew Gowdy, head of property and commercial finance at Whiterock Finance

With the current deadlock at Stormont and the possibility of a no-deal Brexit, business owners and operators face continued economic uncertainty. As the October 31 deadline fast approaches, we've witnessed business owners busy Brexit-planning various scenarios for over three years.

One key element that business owners will have been focusing their efforts on is ensuring that they are operating as efficiently as possible.

I've spoken to many businesses that have continually been reviewing and refining their operating models, manufacturing processes, and buying and selling strategies to become as lean as possible.

An important component of becoming lean is the efficient use of working capital. In my opinion, if a business can smartly manage and recycle their cash, they can maintain and improve their outputs from their existing capital base. This can be done across all sectors, including property, manufacturing and services orientated businesses.

There are a few quick wins when it comes to improving a working capital cycle, which may or may not be within business owners' control. Balance sheet management is a term often thrown about but is an effective tool for observing where cash is tied up. By identifying an area of your business that is draining your cash supplies, you may be able to release and manage it more efficiently.

One of the biggest impacts on cashflow is stock purchasing, particularly for businesses with large inventories and product ranges. Consideration should be given towards discounts on slow-moving stock or consignment stock if available from suppliers to free up cash.

Valuable funds can also be tied up with debtor days often creeping beyond agreed terms. If the sector allows, companies should look at shortening their collection days or offer discounts for upfront/early settlements.

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Ensuring that bank account details are clearly marked on invoices is a must and will speed up cash collection.

Negotiating payment terms at the outset with creditors will not only strengthen relationships with suppliers but also lead to repayment plans which suit both parties. This can often present a line of credit which is not interest bearing, freeing up cash for other immediate purposes.

There is no getting away from infrastructure costs for property development as these generally need to be undertaken in full to avail of reduced cost per unit. However, intuitive phasing of schemes will allow developers to manage their build costs and forecast sales proceeds.

Another option outside balance sheet management to consider is the various forms of finance. Outside of the traditional banking products, never before has Northern Ireland been able to offer such an extensive range of alternative finance options.

Alternative finance is best described as complementary to bank finance. There will always be a place for traditional bank lending, however, with risk appetite and flexibility often providing sticking points, business owners have now accepted that their funding package needs to include a mix of funding solutions.

We recently launched our property and commercial finance service, which has attracted a lot of interest from local developers and business owners. We are already seeing results from sourcing traditional banking products and alternative finance for local developers and business owners.

Managing cash flow in an uncertain environment requires constant review. There are a number of strategies and solutions that local business owners can adopt. Whiterock Finance has provided and sourced funding to over 100 local SMEs. We have found that the most successful businesses have an equal measure of balance sheet management, bank lending and alternative finance.

There is no doubt the impact of Brexit will be felt right across the Northern Ireland economy, to what extent we will all have to wait and see.

By continually reviewing their cash flow management strategies, local businesses can get a handle on their finances in order to tackle the challenges that lie ahead.

Belfast Telegraph