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Friday, June 19, 2009
With interest rates as poor as they are it has been quite a challenge to find a secure home for the cash that provides anything like a sensible return. There are deals to be done, but the price you pay is that you normally have to tie the money up for an extended period. As a result most of the clients "free" cash is now in longer term deposits.
The other interesting angle that has come about is the ability to pay key suppliers early and take not insignificant settlement discounts which are often available. This has been possible with a couple of significant raw material suppliers and has given an excellent return on the cash, by only in effect paying debts sooner. Nice!
Despite careful cash planning we recently hit a short-term problem. The timing of the cash flow unexpectedly worked against us. A couple of weeks before a significant deposit was due to come back from a long term bond, sales activity increased meaning increased purchases (which are now paid for on a 7 day cycle as a result of taking the really excellent settlement discount on offer) and also a big customer missed their payment date, resulting in a delay of a big receipt.
In a matter of just a few days the cash position changed. All free cash was tied up in long term deposits and we had some big payments to make and unbelievably not enough free cash!!
The relationship with the clients main bankers is excellent, and a good deal of time and effort goes into keeping it that way. Even though there are no loan or funding facilities with the bank (the client clearly being debt free) and the surplus cash is deposited elsewhere (as they cannot match the rates) we spend time ensuring the bank understand the business, get good quality management information within 5 working days each month and manage the bank account impeccably. You never know when you might need a favour.
This proved to be one of those times. A call to the Senior Commercial Manager with a request for an overdraft for two weeks of £175,000 unsecured was met with a positive response within 24 hours! Problem solved at a stroke.
The bank manager made a very strong point of telling me that we probably had the only unsecured facility of anything like this size within his region if not the UK, and the reason we got it was because of how the account and the relationship was managed. He said approving the facility was only possible because of the strong management information and our impeccable control of the account and facilities.
We often say, make your bank manager your best friend, and this just goes to prove why! Bankers are not your enemy, they can really help you solve problems if you manage the relationship properly!
Wednesday, June 17, 2009
This is all so true and I like the use of the sins ...
If big businesses are hurting financially, smaller suppliers that are more reliant on cash-flow will be hurting even more. Rather than envying their cashed-up clientele, suppliers may need to sit down with customers and restructure project schedules and payment terms to facilitate regular progress payments and deal with cash flow issues. Most customers will appreciate the need to keep key suppliers afloat, especially where they have developed good business relationships.
Lesson: On the conduct of each depends the fate of all (Alexander the Great)
Market forces shift, industries evolve, customer expectations change – especially during recessions. How resilient is your organisation to change? If your business is based on widget making, can the market be widened to increase your customer base? Alternatively, if customer demand for your services is waning, have you considered ways to re-brand, re-fresh or re-conceptualise your service offering?
Lesson: If you don’t change, you will become extinct.
The credit crunch has forced many businesses to delay forecast spending and put non-essential projects on hold. As a result, SMEs that were dragging out commercial negotiations or pushing for higher fees back in 2008 may now be left high, dry and without service fees.
Lesson: A bird in the hand…
If you would like to read about, Sloth, Gluttony, Lust and Wrath (!!) take a look at the Dynamic Business website here. Then take note!!
Thursday, June 11, 2009
One of the Government's key initiatives introduced earlier this year to help this is the Enterprise Finance Guarantee ("EFG") scheme, which replaced the good old Small Firms Loans Guarantee Scheme ("SFLG") earlier this year.
The headlines suggested that this would inject £1.3bn into smaller businesses by the Government guaranteeing to the banks 75% of the loan, with the balance supported by whatever means the lending bank felt was appropriate. However a spokeswoman from the Department for Business Enterprise and Regulatory Reform ("BERR" - the old DTI) said recently that only £230m had been lent through the scheme so far. We hear many stories about the difficulties of getting these loans and the often unrealistic demands placed on lenders by the banks. There also appears to be a huge inconsistency in approach and understanding by the banks.
It certainly seems not to be the great salvation that the Government would have us believe.
At the end of the day, if you want cash from a bank it all comes down to the quality of your proposition. No scheme it seems is going to make that any easier. A good business plan, supported by realistic assumptions and financial forecasts is a good start point. If you need any help get in touch