Tackling cashflow: a case study


Many years ago OBC worked with a small business with a serious cashflow problem. It was a niche magazine run by a very creative and entrepreneurial publisher who, unfortunately, had a no idea about finance.

At the beginning of every month, the sales team, who focused on selling advertising space, would write the forward sales number on their board in the office (which was actually the garage of the owner's house). Because many of the clients bought adverts in bulk at the beginning of the year, this number always represented a large proportion of the total sales for a given month.

From time-to-time the business owner would come in and be very impressed with the figure on the board. Then she'd check the company bank account and wonder why the 2 figures didn't correlate.

Confusing cashflow with sales had serious consequences. The company had exhausted its borrowing powers, reached its credit limits with all suppliers and no one knew whether the magazine would be published each month. On more than 1 occasion the owner has resorted to paying wages with her personal credit card.

The result was a very stressed owner and unmotivated staff: not a happy place at all.

How did we help?

The first step was to identify money going in and out of the company. This meant getting all the financial information in the same place and making sure it was updated each month.

Next, we worked together to maximise available funds. We introduced a procedure for chasing unpaid invoices to increase money coming into the business and reduce the reliance on the company overdraft.

The business also renegotiated terms with its suppliers. Many of the existing suppliers were local small businesses themselves and were quite reasonably flexible.

We suggested introducing a discount for clients who paid early. Initially there was some resistance but asking customers to pay for their adverts 6 months in advance meant the company received cash sooner and was particularly successful with larger businesses.

Finally we encouraged the owner look at the business’ finances long-term, rather than on a month by month basis. Using historical information she was able to identify peaks and troughs in revenue and expenditure and plan accordingly.

For example, the June edition of the magazine generated higher advert revenue (it was distributed at a large industry event) but the company wouldn't receive all payments until the autumn. As a result, the business owner decided to pay for flights and accommodation for an international conference taking place in the spring well in advance using the extra revenue from the June magazine. 

The results

The company has moved out of the garage, diversified into running conferences and taken on more staff.

There are still times when cashflow is an issue but the business has better processes in place to control the things it can and mitigate against the effects of things it can't.

But the learning process wasn't one way. Working with this client taught us that the biggest cashflow hurdle to overcome is changing habits. Over the years we've found that the most successful business owners are the ones who are open to change and seek advice on how to improve.

On our part we make sure that our advice is always presented in a straightforward and engaging way and offer solutions the suit your business.

Find out more about cashflow by reading our guides on profitability and managing costs. Or contact us for a free initial consultation in Brighton or Eastbourne.




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