FFB June 2016

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DREAM TEAM

11 11 Pay your bills on time - Make

sure that you pay all your suppliers within the agreed credit terms to avoid late charges or interest.

12 Don’t rely on one customer – Try

and ensure that you have a decent spread of customers because if you are over reliant on one customer and that customer goes bust, this could have a devastating effect on your own solvency. Good luck with the new business.

JIM LAWSON, PROGRAMME DIRECTOR, WOSSKOW BROWN FOUNDATION

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I would always advise that new business owners take a couple of really important actions at the pre-start/early start-up phase. One is to make sure you engage with an accountant who should assist you to understand and manage cashflow. Like any other important relationship its key that you find the right accountant for you. Ask around, get some recommendations, speak to other business owners and meet three or four accountants to get an idea of how they operate before you decide which is the right one for you. Second, carry out a similar process with banks before you decide where to open your business account. Along with finding the right lawyer to help you on legal matters these are two key relationships as you start up your business. Added to that I would recommend that you find a business mentor, someone who has ‘been there and done it’ who is prepared to meet you every month or so to chat through the challenges you come across. Its really helpful to have a knowledgeable ‘critical friend’ in your corner who can be a sounding board and share their own journey with you. They too will have come across cashflow issues and will be happy to tell you how they have navigated any challenges. Meet cashflow challenges head on, they wont go away if you ignore them and timely intervention can make a big difference. Between such a group of three to four trusted advisors you should have the right kind of support to help your business to grow.

KEVIN KERLEY, CHAIRMAN OF THE ACADEMY FOR CHIEF EXECUTIVES Before starting a business it is great practice to sit down and do a cash flow forecast for 12 months ahead and making this a rolling forecast by getting into the habit of doing it monthly. This will give you a very good idea of the capital required to cover the peaks and troughs during the first 12 months. By carrying out the exercise monthly you will always have a good idea of the cash required 12 months ahead. This will not completely insure you against cash flow risks as there are many other factors at play, but it will give you a good starting point. I would always advise that whatever the cash flow shows as the capital required, inject 25 per cent more capital to start with to cover surprises. You should also ensure that you negotiate the best payment terms with your customers and suppliers, and be assertive about collecting money in on time, no one will be upset at you for asking for monies due, but if you allow late payments to persist your cash flow forecast will be incorrect and then you may find yourself in trouble. Making a profit on paper doesn’t always translate into money in the bank. Keep stocks as low as you can in all areas of the business. Overstocking is dead money, and capital that you may need for other things. Keep labour tight as manpower is likely to be one of your biggest overheads. Don’t forget to budget for VAT and Corporation tax, many new business

‘Making a profit on paper doesn’t always translate into money in the bank. Keep stocks as low as you can in all areas of the business. Overstocking is dead money, and capital that you may need for other things. Keep labour tight as manpower is likely to be one of your biggest overheads.’

owners have a lack of understanding how the VAT and tax payment rules effect the bank balance. Whilst VAT bolsters your cash for three months at least till you have to pay it over, it can give you a false sense of security and ultimately lead to tears if not handled in the correct manner. I have always believed having a separate bank account for VAT and tax is good practice as it allows you to budget and not get caught out. The money is there when the payments are due and you don’t get confused over what money is the business’s and what belongs to HMRC. Another area that can catch out startups is faster than expected growth. Whilst a great position to be in, growth usuall requires capital and outlay faster than monies coming in, especially in the early days. Likewise a drop in sales below your forecast may have an adverse effect on cash. This is why forecasting monthly is so important. If you are unsure how to forecast, your accountant can usually help you with this and is worth paying fora good quality accountant who has experience of assisting start-ups. A good relationship with your bank account manager is also important. Banks do not like surprises so keep them appraised of your true progress, and should you need an overdraft or a cash injection, they are more likely to be cooperative. Finally I have seen far too often SME business owners lured into a false sense of security when it comes to money at bank and pay themselves more generously than the business can afford. Keep your drawings to a minimum and don’t get carried away with extracting cash from the business that will starve it of essential capital, particularly in the early years. Most businesses experience a poor year at some stage and having the reserves to get you through that is wise practice. Cash really is king and if you manage it well, you should avoid being one of the 90 per cent that don’t succeed.

CHALLENGE OUR TEAM. The team will respond to one selected question in each edition of First For Business. Send your questions to ffb@regionalmagazine.co.uk. Name withheld on request

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