Cashflow is the heartbeat of every business. Books have been written on the subject – but what lies at the heart of the topic? Talking to a client today, we discussed cashflow in terms of certainty, which seemed to strike a chord, which made me want to share the conversation.

We saw two models of cashflow; the first is usually called the budget, and includes everything you hope will happen. The second (and possibly more important) is the real cashflow, and should only include figures where certainty is close to 10 out of 10.

Certainty of expenditure is pretty easy to plot, wages, rent, telephone bills, they all fall due with depressing regularity.

Certainty of income is far less simple. Not only should the value of the income be certain, so also should its timing. You may know you are expecting a cheque for £5,000, but when exactly will the funds clear your bank account?

When it comes to your cashflow, make sure you are dealing with certainty, not hope.

Great question raised this morning at the Birmingham Social Media Cafe – “Do you value your time?”

It sparked an interesting debate about the perceived value of your time. Do you give it away freely? Do you calculate free-time in terms of lost opportunity? Is your time worth more or less to you than to your clients?

In a service sector, time is what I sell. If I am not charging for it then by default I am giving it away. How much can I afford to give away before I start to devalue it?

As ever, it’s a compromise. I need to give a bit away to “show what I’m selling”. The time that I choose to invest in networking needs to have some ROI.

I was reminded today that time spent with some people is priceless.

Financial Business Support
Many years ago I interviewed a bunch of characters for the post of Nightclub Manager. Failing to make a decision, the panel asked itself the following question, “If the interviewee was a nightclub, would I go to it?”. Suddenly the choice became easy.

It is very easy to forget the impact that the person has on the identity of the business. Every employee, from security on the front desk to the chair of the board, adds a key ingredient to your brand. In times of apparent doom and gloom, what kind of impression do you give the outside world?

A visitor to your business, whether by phone or in person, may well learn more about your company from the first point of contact in the first few minutes than in the whole of the meeting you have carefully planned.

Recently my son appeared in a community production of Joseph And The Amazing Technicolor Dreamcoat. It was a great show, with all the drama and fun that being part of an amateur musical entails.

As I was reading HSBC’s January Economic Outlook report this morning, it struck me that leaders have an incredible capacity to forget the lessons taught to us by experiences in the past. Over the last few years we have all read, and talked, about bubbles bursting, and such levels of growth being unsustainable.

Joseph told Pharaoh how important it was to save during the years of plenty, as reserves would be needed when times turned rough. Pharaoh listened (and no doubt received conflicting advice from other experts), and decided to impose regulation that ensured his country would withstand the inevitable downturn in fortune.

Are today’s leaders willing to take the same kind of action as Pharaoh? They haven’t in the last few years…

The root of the problem is that most small businesses are selling to companies larger than themselves, who have the advantage of a full-time finance director. These seasoned professionals know how to manage cash-flow, and therefore how to improve their companies’ bottom line instantly by quietly moving payments from thirty to ninety days.

You would do well to support your sales operation with a finance specialist. If you do not have a full-time finance person, then pay a little extra and get someone appropriate to help supervise the sales process.

They will put in some sensible precautions, such as credit controls on small and medium-sized businesses who might want to place orders. In my experience, it is rare for a company to turn down business from someone purely on the basis of a poor credit rating, but it does improve the negotiating power of the salesperson to ask for a substantial up-front deposit.

If the potential order is with a large organisation who have an excellent credit rating and who represents a substantial share of your revenue, there is still the problem of their moving the goal-posts on payment terms. The solution is to have an open channel of communication between your finance specialist and their finance director.

The reality is that few large organisations want to be seen to be bankrupting small companies by applying unreasonable payment terms. Problems usually arise because the salesperson does not have the knowledge and patience, or even vocabulary to discuss these issues with finance people at an early stage in the process.

Left to their own devices, finance professionals will usually come to a sensible conclusion which represents a win for both sides. The supplier might be happy with longer payment terms in exchange for a larger order, or you might offer a price discount in exchange for an up-front payment.

Late payment is a natural consequence of difficult economic conditions and has no easy solution other than to employ the services of a professional. This could be either a finance expert or a company who knows how the system works. It may be expensive in the short term, but represents an excellent return on investment over time, the same argument you should use to promote your own products and services.

If you want to talk this through in more detail, call me on 07913 895798.

I just picked up this article – although brief, it points the finger at what I believe lies at the heart of the economic “crisis”.

http://www.charityfinance.co.uk/home/content.php?id=2424&pg=&cat=58

Who is asking the hard questions in your organisation?

The dust seems to have settled on media speculation about VAT – just how many sexy headlines were they ever going to come up with anyway?

So what should you be doing to make the most of the change?

Number one, now is the time to make large purchases, such as computers and other goods and services that have a high cost. The reduction on VAT should mean that they will cost you less. Don’t forget to haggle on price as well.

Number two, check your purchase invoices from suppliers. Make sure you are being charged at the lower rate of 15%.

Number three, check the sales invoices you are issuing. If you can justify making a supply at the old rate of 17.5%, then use it.

Number four, take proper advice if you are unsure what to do. Behind HMRC’s PR is an army of folk whose job it is to collect tax.

Met an interesting person yesterday – which sparked a debate about types of accountants. Not whether they are interesting or boring (!), but whether they are financial or management accountants.

Financial Accountants produce the raw data – they are the unsung heroes and heroines who make sure your numbers are produced on a timely and accurate basis, that debts are called in, and creditors appeased.

Management Accountants are a different breed. They look at the data and ask the “difficult questions”. Such as “Is this a good number?”, “Have we achieved what we thought we would, and if not, why not?”, and perhaps the most important question, “What is the implication of this data to our financial future?”.

Most businesses have Financial Accountants (for example the bookkeeper). I believe businesses need both kinds of accountant, and that it is very hard to find someone who can be both.

Who is asking the difficult questions in your organisation?

With thanks to David Pugh of Daymar Ltd

Well at 3.30 yesterday I settled down to watch the Report. The first half hour told me nothing except how well the government had done and that today’s problems were solely due to USA sub-prime borrowing. The next half hour mainly told me what they had leaked out to the weekend press anyway, so why bother ? And why bother indeed was the feeling after Alastair had sat down.

So for those of you who might have felt too excited to watch it – a quick update for you.

Gordon was there just behind Alastair – presumably just a coincidence that Alastair behaved like a glove puppet of Gordon. And Gordon did his nodding act again, and this time we got a few smirks as well. Good to see how seriously he takes our economic problems.

Apparently one of the main reasons for the global economic crisis is the high level of debt everywhere. So the government solves this by ….yes…increasing our country’s debt. But (in the words of the M&S advert) this is not any normal increase, but an increase to the highest level in history.  Hmmm – what was it that our friend Gordon used to say about “prudence” ?

Still don’t worry – Alastair said his budget should be back in balance by 2015/2016 – what a shame we can’t all wait for that date for our personal and company budgets.

Alastair has given us one short term (temporary) benefit before we pay (permanently) through our nose for this debt. Yes – VAT down 2½% from next Monday up until 2010. This is supposed to give a boost to spending. But……….. there is no VAT on food, children’s’ clothing, books, papers, postage, train and bus fares or council tax. There will be no reduction in petrol or diesel, or in heating bills. So no reduction in prices of the things you pay for every day. But there will be a price cut in televisions and all those things you buy once in  a few years, and then only when you have the disposable income to do so. Hmmm – so where is the boost to the economy?

Even so, with stores slashing prices by 20 to 30% I am not sure how we will actually notice this. In fact, how many retailers will keep the VAT cut as a contribution to their margins, or use it to offset the costs of changing tills, brochures, price lists and overtime for everybody to do this over the next weekend, and not pass it on? However, I am sure we will see the increase clearly when it goes back to 17 ½% on new year’s day in 2010 – so a happy new year to look forward to then. Still, if it does get consumer spending up, it will be on consumer goods in shops – so good news for employment in China as everything is made there now, but not much benefit for the UK. 

This VAT cut does nothing for our heating bills, as these have 5% VAT and this is not affected.

But prices for tobacco, alcohol and fuel will not go down – because he is increasing duty to offset the VAT reduction. In fact those of us claiming VAT back on petrol and diesel lose out because there is less VAT to reclaim! I wonder if Alastair has thought of how goods get to the shops ? That lorry derv will now cost more so food prices will go up even more and there is no offsetting as food generally is not subject to VAT.

And when VAT goes back up at the end of 2009 – will they reduce the fuel duty and the alcohol duty to compensate for the increase in VAT – am I being cynical if I think not? So yet another rise in fuel and drink prices again in 2010 then – by the extra fuel duty today plus the extra VAT which in turn is charged on top of the duty.  And that increase in fuel prices will feed through to higher prices of everything else. Hmmm – and this budget is designed to boost the economy?

And tax increases to come in April 2011 – is it just coincidence that this date is after the next general election ?

Increased income tax in April 2011 for those earning over £145,000 – up to 45%, and detrimental adjustments to the personal allowances for those over £100,000. Also not until April 2011 is that other income tax increase (oh sorry I mean national insurance which of course is not income tax is it?) when it will go up for both employers and employees – an extra ½% on all rates.  But it’s more than that – between you and your company you will be paying 1% more. And this is on top of the national insurance increases which happened just this last April – he forgot to remind us of those.

So no higher tax or national insurance until 2011 – is this because after then Gordon and Alastair and company expect that they will not be earning their high salaries by then ? (can’t think why not…………………). So it’s a good job that London MPs last August quietly awarded themselves a £6,065 rise in their London allowances to take effect next April to help them through this.

But some good news – the personal allowance increase this year (after the 10p tax fiasco) will become permanent. This is the amount you can earn before income tax is taken off. And that 2p income tax he proudly announced early this year off earned income – well it  has still not been taken off savings income, although again he did not mention this.

For those on state pension – well, not bad as there will be an increase in the basic amount from January (although this is not a budget point as it would happen anyway) plus a £60 boost payable in January.

So how is it for those of us with small businesses and companies ?

Well some (temporary) good news – the increased corporation tax rate for small companies next year from 21% to 22% has been “postponed” – he did not say until when but probably only 12 months deferment. It has still been increased from the 19% we enjoyed a couple of years ago.

But of course the increased employer national insurance will hit – not just on salaries but on benefits in kind too. He also forgot to remind us that in 2012 we will also have to bear a compulsory 3% employer costs on pensions.  So a good help to employment in the economy by then……….

He also gave some help in spreading tax bills if the company needs it – but it means phoning a specific helpline and negotiating with HMRC, and interest will still be payable on the delay. Still if it all does not help – then company losses (up to £50k) can be offset by previous years’ profits up to 3 years, increased from the previous one year limit.

They have confirmed there will be no action in 2009 on “income splitting” following the Arctic systems case, but they are keeping it under review. So we are OK for sharing dividend income with our spouses next year but we don’t know for how much longer. With the increase in national insurance we will help you to avoid this by paying through dividends which we can continue to do under current legislation.

So in summary – not really any good news in the short term despite the government spin  - no reduction in food prices, heating bills, fuel prices, council tax or anything else we classify as essentials – but bad news in the long term as we will all be paying for that increased government borrowing in the future.

But if you get really stuck – you can now pay tax to HMRC by credit card (for a fee which they will charge you as well) – and this from a government complaining we have put too much on credit. Am I being cynical again?

As always we need to see the details in the press releases which may refine some of the points above, but we will keep you up to date with developments. Please feel free to raise any queries with us, or to refer us to any colleagues who we can help.

Oh and don’t be fooled by the stock market increase yesterday – that was due the US bailout of Citigroup and not Alastair’s speech. So we have to be grateful to Bush after all.

Great story I picked up:
http://news.ninemsn.com.au/article.aspx?id=665847

Is it the company being picky, or do they have a point?