Turnover is vanity, profit is sanity and cashflow is king.

15 July 2008

Martin Kingman, Debt Recovery & Insolvency Manager explains how businesses must keep a close eye on their bank accounts to ensure that they have sufficient cash in the bank to meet the day to day demands.

The credit crunch is here and Darwin’s survival of the fittest applies as much to businesses today as it did to animal species 150 years ago. It is said that turnover is vanity, profit is sanity and cashflow is king - this should be the phrase by which each businessperson lives-by over the next few years. It is very easy to get drawn into seeing that turnover and profits are up and believing that all is well, when in fact you cannot afford to pay the monthly salaries due in a few days because the bank account is up to its overdraft limit. It used to be the case that you could call your friendly bank manager and 'just get the overdraft increased to cover it', in the current climate with the banks being much stricter on their lending criteria, many of these requests for further funds are being refused. 

Over the past 10 years we have seen an economic boom in this country, now we are on the downturn of that boom and whereas anyone can run a profitable business in an ever expanding economy fuelled by cheap credit, only efficiently run businesses will survive in the current market.

To ensure that you are able to meet the financial demands placed on your business, here is Martin’s top 5 tips to help your business survive:
 

1. Monitor all sums that are outstanding and begin to pursue the debtors as soon as they go beyond their terms of trading;
2. Keep cash in your current account or instant access saving to ensure that you are not caught short whilst money is on deposit;
3. Encourage efficiencies within your business to keep spending to a minimum and cut spending on all non-essential items;
4. Seek payments on account or personal guarantees from Directors if you are unsure of the customers ability to pay;
5. Retain a quality debt recovery team to whom you can instruct as soon as the customer goes beyond their terms. Get a team in place before you need them and allow your staff to discuss cases with them that are causing concern. Often this can have the effect of resolving these minor issues before they become major problems.

This article is intended to be for general guidance and information only, it is in no way a substitute for specific legal advice. It is based upon our understanding of the cases and the law as at June 2008 and may be affected by subsequent changes to the law. 

Should you require any specific legal advice on the issues raised or on dishonoured cheques, debt recovery, insolvency or international enforcement please contact Martin Kingman on 01634 828277

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