Last week, following a late night, for me anyway, at a Somerset Chamber of Commerce dinner with some like minded entrepreneurs, I had a lie in. Consequently I took my dogs for their morning walk on the East Mendip hills at 7:30 instead of the normal 6:15. At 7:30 it was light as opposed to the pitch black that we normally witness at 6:15. Consequently I was able to spot the first green shoots of spring: the first snowdrops were blooming, always a welcome sight after the long, wet, dark months of winter. It somehow lifts the spirit.
There has been a lot of talk recently of the new green shoots in the economy. The economy has been growing at a healthy rate, 0.7% in the three months to December 2013, and it is forecast to continue to grow for the rest of this year, with the IMF forecasting growth of 2.4% for 2014. This is good news for business! Or is it? The growing economy will surely present oodles of opportunities for business that have not been seen in the long years of the recession and low growth that we witnessed following the financial crises of 2008. Well, that is true. However, there are also dangers that lurk in the shallow waters of the recovering economy. In the periods following previous recessions, an increase in failing businesses has been evident. These businesses had weathered the recession only to witness insurmountable problems once it looked as if it would be plain sailing in the years of recovery.
One of the reasons for these business failures is cash or, more precisely, the lack of it. It is the lack of cash that kills businesses, not necessarily the lack of profit, although this can be a contributory factor. Growing the business by taking up the opportunities that the recovery presents, can often see an increased cash requirement in the form of increased working capital. This is true in the current recovery as it has been in previous recoveries, only this time, there is an additional factor that was not seen in the past: the banks ain’t lending to business!
Cash is King! I am sure that everyone is familiar with that phrase. Well in this recovery it will never be truer. With the banks not lending, it is imperative, more so than normal, that businesses keep a tight reign on their cashflow. Their billing and records need to be kept up to date. Their credit control procedures need to be effective. They need to review their outgoings and spread these to avoid pinches in the system. They need to prepare and regularly review cash flow forecasts.
By controlling their cash businesses will be able to take the opportunities presented by the recovery and the green shoots in the economy.
Are you in control? Will you be lifted by the green shoots? Take action now and make cash your king!