Late payments are killing cash flow in small firms

In a recent survey, Satago Ltd asked 400 firms for the most common excuse they heard for late payment of invoices. “The cheque is in the post” did not actually feature – a sure sign of the death of the cheque perhaps, however they did compile a list of the top excuses for late payment.

Top excuses for late payment

  • Invoice not received/lost (44%)
  • Unable to pay because they were awaiting late payment (32%)
  • Invoice dispute — after contract agreed (13%)
  • Person responsible for payment has left the business (12%)
  • Customers attempting to renegotiate payment terms mid contract (11%)
  • Invoice dispute — with no contract in place (7%)
  • Payment paid to different company / account (5%)

Source: Satago Ltd SME Research July 2014

The lifeblood of any business is cash, and cash flow management is one of the most critical activities for the owner of any small business. There are very few facilities available to help small firms work through the inevitable low cash periods of the business cycle, so the pressure is on for the owner to do all they can to manage late payments.

Here are a few tips to help small firms avoid late payments:

 

  • Ensure that when offering credit terms you asses the level of risk, do a credit check and act upon the findings
  • Be rigorous in applying your payment terms, firm and fair is the best approach.
  • Early contact with the client confirming receipt of the invoice will flush out any issues and encourage payment to terms
  • Consider options for early and easy payment, credit cards and incentives for early or prompt payment
  • Make sure you have clear terms and conditions of trade to ensure that any debt is enforceable

Running a small business is an exciting and rewarding experience. There are many interesting things that will demand your time and attention, but it can be some of the more mundane aspects that can make the difference between business success and failure!

Exit and Succession Planning

“Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.”  Aesop Author 620 – 560 BC

Having established a solid business, which still has plenty of potential to grow further, how and when should you implement strategies for grooming the business for eventual sale or for succession, so that you get best value? There are a number of tactics and measures that can enhance the value of the business if you have a specific timetable to exit. The best approach is to start implementing the exit strategy two to three years before the sale or succession, particularly if you need to recruit and coach new management. If the exit is more imminent, there are still several methods available to maximise value. But first: The three factors that would have the most negative impact on sale value:

  1. You are the business – there is no quality management left when you leave the business, and you have all the know-how
  2. The business has not been systematised – there are few controls and procedures in place
  3. There are skeletons in the cupboard – such as personal assets in the company, litigation, obsolete stock, or payment problems

It is therefore essential that you can hand over a well-managed, properly controlled and clean business.

Key actions and steps prior to exit are as follows:

  • Be realistic on future value – be realistic not over-optimistic
  • Plan for various exit options – family succession, management buyout, trade sale, or even flotation – research your market

 Consider:

  • Personal objectives – e.g. retirement annuity need
  • Your level of risk tolerance
  • Family objectives – many potential successors may no longer be interested
  • Company objectives
  • Dispose of non-core business or assets – rationalise
  • Timing (sell at or just before peak!) – sell when you’re strongest
  • Aim for consistent profit growth over the period to exit
  • Look at building the profile of the business so it gets onto potential external purchasers’ radar
  • Avoid over-reliance on a few customers, and diversify the suppliers too if necessary
  • Protect Intellectual Property rights e.g. trademarks, patents
  • Succession – be very careful if splitting shares between children – e.g. also bring in an outside shareholder who is well-experienced and mature, perhaps as chairman
  • Keep existing management and staff informed and onside
  • Recruit better managers if necessary – aim for excellence
  • Allow plenty of time to groom your management
  • Get good professional advice!

Exit and succession planning will help avoid many of the mistakes when selling your business. We have created a 10 point check list to aid you in the process

 

 

Why do I need professionals to sell my business

I want to sell my business, but I don’t know where to start!

Employing a professional adviser should be the easiest solution, but I can’t see the value of how they can help me to sell my business…

…at CMC our experience shows that if you have never done it before the implications of going it alone can be costly:

  • always being distracted by the day-to-day and never quite getting round to selling your business
  • wasting a lot time understanding the market and the process
  • overstating the value of the company and therefore putting off potential buyers, or worse
  • understating the value of the company by not understanding its true potential to buyers
  • having to find the buyer yourself – often an existing employee who does not value the business in the same way
  • being so distracted by the sale process that the business starts to suffer, and consequently its value
  • letting your emotions get the better of you when the tough negotiating starts

Does any of this sound familiar?

The benefits of using a professional adviser thus become clear. At CMC we have the experience and time to help you to:

  • understand the marketplace and what can be achieved in both value and timescales
  • achieve a higher value for your business
  • shape the business to suit potential buyers
  • connect you faster with potential buyers
  • minimize your emotional involvement in sale negotiation
  • allow you to continue to grow your business without too much distraction
  • understand the market and Business sale process in simple terms

So if I want to sell my business…

The best thing I can do is ask CMC to help.  Call 01491 829 185.

If pressure of work forces you to postpone some business tasks – ensure cash flow management does not get overlooked!

Most small business owners find that there are always more demands upon their time than there are working hours available. It is therefore inevitable that some activities will be delayed, in order to manage those things that are most immediate and pressing. Whatever the pressures, it is really important that cash flow management is not the activity that is frequently postponed, particularly in a rapidly growing business.

It is an unfortunate reality that most business failures occur not as a result of being unprofitable, but because of a shortage of cash. Even very successful businesses can find themselves in a situation where the bank balance takes a sudden downturn. If the problem catches the owner by surprise there are often limited options for a very quick solution, and the consequences can at best be costly and in the worst cases result in the closure of the business.

Produce and Maintain a Cash Flow Forecast

The essential first step to avoiding cash flow problems is to produce and maintain a cash flow forecast. This does not need to be a complex document, but should record the date and value of anticipated receipts of cash from customers and the dates and value of major items of expenditure. The forecast should be regularly updated, usually weekly or monthly, depending upon the frequency at which cash flows in and out of the business. Having produced the forecast it will be immediately apparent if there are any periods where availability of cash appears to be tight. It is also helpful to do some simple “What if?” analysis, to understand how the situation may change if any problems arise: e.g. a major customer is late in paying their invoice; a major item of expenditure has to be made earlier than anticipated.

Review your cash flow forecast

Having produced the cash flow forecast, it is important that it is maintained, because changes that may appear relatively benign or positive can have a significant impact on availability of cash. A situation that often catches business owners by surprise is rapid growth. Demand for the business’s products or services increasing quickly is a real positive. However, the additional activity can consume significant quantities of cash: larger orders to suppliers; increasing levels of stock; funding the credit terms for more customers; overtime payments or salaries for additional staff. If managing the demand results in updating of the cash flow forecast being delayed or abandoned there can be a very unpleasant surprise when the cash problem materialises!

Act quickly if problems arise

If the cash flow forecast indicates that there may be problems in the future, the “early warning” significantly increases the range of options available. Initially there are internal options: can the receipt of cash be improved by ensuring all customers are paying within agreed terms: could customers be offered early payment discounts; can any significant items of expenditure be delayed; is the credit provided by suppliers being used, or could more favourable terms be negotiated? If these options are unlikely to be sufficient, the next step is to consider how the working capital capacity of the business can be expanded: shareholder loans; increasing the bank overdraft; invoice discounting. If any of these options have to be explored, there will be a much more receptive reaction from the potential provider because the situation is being managed in advance, and the owner is demonstrating good understanding and management of the business.

So, whether times are good or bad, whatever the pressure, cash flow forecasting remains a high priority for the business owner

Selling a small business? Will your new life be on your yacht on the Costa Brava or in Costa Coffee?

You only sell your business once, so you need to get it right!

In many aspects of our working lives, experience makes us more effective. We learn something from each thing that goes well, and often a whole lot more from things that go wrong. As our experience grows, we become better equipped to tackle decisions with increasingly significant consequences. However, there are a few situations where we do not have the opportunity to progressively develop our expertise, and the first experience requires major decisions that will have a profound impact on the rest of our lives. One such situation is selling a small business. For many small business owners, selling their business as they approach retirement will provide an injection of capital that can determine the lifestyle of their family over the following years. The sale price, and consequently the future lifestyle, will be very dependent upon the preparations that are made in the years before and the effectiveness of the sale process. The difference in outcome between best and worst scenarios is not just marginal, but truly life changing! So, what makes the difference between visiting your yacht on the Costa Brava and spending afternoons in Costa Coffee? The fundamental difference is preparation: it is never too early to start the process. These are the critical components of a good exit strategy:

1) Anticipate your exit options

What is likely to be the best way for you to hand over your business? A trade sale, to another business in the same, or adjacent markets? A Management Buy-Out by a current or future employee? Would the business be attractive to a financial investor? Would you like the business to be taken on by a member of your family?

2) Prepare the business

Having identified the preferred exit options, consider what aspects of the business will be important to those buyers, and how they can be developed to optimise the value. During the sale process the business will be subject to due diligence, so it is vital that all the records are consistent and complete. Ensure there is a clean separation of assets of the owner and those of the business. What is the succession plan? Who will be taking on the owner’s responsibilities in the business? How can you demonstrate to the potential buyer that the hand over will not have a negative impact on performance?

3) Identify the sale team

An effective and trusted team of advisers is crucial for navigating the sale process and reaching a successful conclusion. Whilst there is an understandable reluctance to incur unnecessary fees, establishing the team early is a sound investment. Some members of the team will not need to do significant work until the final stages, but having them engaged in the process provides the opportunity for early interventions that can save major costs later. It also helps to build good working relationships. The seller will be heavily dependent upon the advisers during the process: it is vital that they know they have the right people around them, before the going gets tough!

4) Prepare the sale plan

The detail of what happens when, in relation to both the sale process and the continued operation of the business. There should be flexibility built into the timing to ensure the start of the process can be delayed if economic conditions are not right, and the owner has the opportunity to walk away and start again, if the potential deal turns sour.

5) Brace yourself for a turbulent time!

Nothing can prepare the owner for the emotional roller coaster encountered when selling their business. Professionals will be making critical and derogatory comments about a business in which the owner has great pride. Ludicrous demands, with unrealistic time scales will be made. Just at the time the owner begins to believe the deal will be done – and should they start thinking about which extras they are having on the sports car, or contacting estate agents for details of properties on the coast – something apparently catastrophic will materialise, leading to a conviction that the deal will never be completed. In a process with such significant consequences the emotional trauma can never be eliminated, but the owner with a thorough plan and effective team will be supported through the tough times and more likely to reach a successful outcome.

David Brassington, CMC Partner for Cambridgeshire and West Suffolk, has first-hand experience of the emotions involved in business transactions, having lead a Management Buy-Out and subsequent successful sale. If you would like to have a discrete, informal conversation about the steps involved in preparing your business for a sale process, complete the form below.

Families! The trials and tribulations of succession

You have run your company successfully for years and have decided you want it to stay in the family so you’ve asked one of your children to join next month……

So many family businesses make an assumption that because they have run it successfully for years and it’s their company, whatever they do will work out ok. However there are many pitfalls that can easily become major issues, many of which I have seen happen and are circumstances I’ve learnt to successfully manage.

Scenario 1 – The chosen one

So, the company has a good and established team with years of experience and success and you decide to bring in your son or daughter straight out of University to be MD designate. You think it’s a great idea as it’s keeping it in the family. The staff who were hoping for promotion or other recognition for their hard work and loyalty will almost certainly resent this new person who they see as having no experience or expertise but who they will now be reporting to. They will not have earned your teams loyalty like you have. I’ve seen this happen followed by the businesses best people leaving and the turnover plummeting.

Scenario 2 – Which child to choose

Or you have three children. In days past, the business will have automatically been passed to the eldest but in this competitive world you need the best leader. What happens if that’s the youngest but the first in line thinks it’s their destiny? Do family loyalties come first, or the long term needs of your company and 20 employees ?. Will it all cause a major rift in the family?

Scenario 3 – None of your children are qualified

Or none of your children have the right experience and expertise. You know this but can’t seem to admit it to them. Do you bring in an ‘outsider’ or decide this is the time to let go and capitalise on your hard work by selling up to ensure a comfortable retirement. The benefit could also be some capital for your children to use as they wish and no family rifts if it is managed well, but usually you don’t manage it well as it’s your family.

Having you drafted your succession plan?

Statistics from BERR and PWC show us that only one third of family firms now get passed on to the second generation and 53% of owners anticipate a change of ownership in the next 5 years but have not drafted a succession plan. As family businesses are known as the ‘backbone of our economy’ it’s vital to our economy and family wealth that these businesses survive and you might feel strongly about leaving your family firm as your legacy.

If you want to ensure no family rifts and a successful succession plan or exit, I can help you to avoid the pitfalls. Call me, Susan on 07510 692969 for an informal first conversation, personalised support and guide to the next steps.

Progressing your business growth programme to success

There are some very good government programmes in place for helping small businesses to grow, however, if not followed through properly; they can leave the business owner(s) with a list of things to do without fully understanding how to do them or even, after a while, wondering if they are still relevant.

business growth

We have recently been speaking to a number of owners of companies who have spent time, effort, and money on programmes of work that have helped them to understand their business and the direction that they want their business to take.

They have been left with their action plans and tasks to take them there. However, because the programme has ended, there is no-one to help them to progress the action plans and no help to take them on the journey that they had planned.

Business Growth Programme Focus

Stepping back from the chaos of the everyday issues that [small] businesses endure is one of the most difficult and challenging steps that owner managers have to make; and it is so easy to get sucked back into this tactical management.

With the choice of keeping a customer happy or progressing with [say] a ‘marketing plan’, the majority of business owners will go for keeping the customer happy as the priority. With more of these choices arising, slowly but surely, the owner, unless highly self-disciplined, can get sucked back in to the state of operational chaos from where he came before the programme.

With the programme complete, the business owner can feel compelled into taking the derived set of actions. However, they may be no longer appropriate and over time will need reviewing. With no-one there to help ratify the way forward, the priorities can slowly revert to tackling the operational issues. Unfortunately the investment in the programme becomes lost and even worse the business owner may well be reluctant to try and take those necessary growth steps again as they will have lost confidence…

Business Growth Programme Reviews

A longer term approach, following the completed busimess growth programme, which imstills some regular [monthly] reviews with the business owner (reviewing management accounts, cash flow, working capital, sales pipeline, orders, marketing, resources etc.) and re-enforces or tweaks the actions and priorities, can ensure that there is a good return on investment.

If this feels familiar and you would like discuss the working approach please contact CMC via the form below.

How to get £2,000 growth funding – 50% of something is better than 100% of nothing!

At the beginning of 2014 HM Government announced a scheme to give UK businesses £30m growth funding so they could get advice, this offer currently ends in March 2015 to reclaim this money.  Time is running out, and just last month Lord Young announced changes to the Growth Vouchers scheme that will mean this Growth Vouchers Funding will now be available to any business.

This is a real offer and thanks to everyone’s feedback, the rules have been relaxed (a little).  I was at the Lord Young presentation at Enterprise Nation earlier today and they do want as many businesses as possible to get these vouchers.

Growth Vouchers will now be available to any business that has fewer than 250 employees, is based in England, is independent and have a turnover of less than €50 million.  This will mean more companies will now have access to £2,000 match funding to get strategic business advice on finance and cash flow; recruiting and developing staff; improving leadership and management skills; marketing, attracting and keeping customers; making the most of digital technology.

I recently helped 2 businesses in Surrey, get and spend their vouchers and they are very happy with this opportunity.  One business wanted advice on scaling their business while the second one wanted leadership and management advice as their staff numbers grew.

To apply for Growth Vouchers visit www.gov.uk/apply-growth-vouchers . The application process is straightforward and will take as little as five minutes; just make sure you have either your Companies House registration number or Unique Tax Reference to hand.  If you need help I can assist you – you do not even need to use the vouchers with CMC Partners.  With your Growth Voucher  you simply go the Enterprise Nation Marketplace website and find a suitable Growth Voucher approved adviser, who is say local to you.  Here is the link to me (OK a shameless plug, but there are others) https://marketplace.enterprisenation.com/marketplaces/businesses/127

Ok so it is not a free hand-out from the government, but it is up to £2,000 of matched funding – 50% of something is better than 100% or nothing!  Phil is an authorised Growth Adviser in the UK, and may therefore able to assist you in getting a voucher to reduce the costs of this advice by 50%. Contact us via this form for more information.