Cash continues to be king

Having the correct cashflow balance is a vital factor in running a franchise successfully, particularly in the present economic climate.

With the majority of businesses I have the pleasure of dealing with, one major constraint for them is cashflow. There has never been a better time to use the expression 'cash is king' than during the current financial crisis, indeed many businesses that were profitable have had to close. While they made money and were profitable, they did not have the necessary cash to continue to trade and meet their wages and bills as they fell due.

In years gone by, banks were very forthcoming in offering overdrafts with little or no information and this was the simple solution to a cashflow crisis.

If a business approached its bank with a request to increase its overdraft limit tomorrow, there was a good chance of success without little more than a call to the Bank Manager.

Times have now changed and cashflow planning should form a fundamental part of your business strategy and should be looked at months in advance, not days.

Banks will expect some explanation and ordinarily will require cashflow forecasts at least one week in advance of when the funds are required, this is when you need to be working more closely with your accountant than ever before.

You need to give the bank every chance of saying yes to any lending request rather than an easy no because you haven't given a good enough argument. The more information you can provide around the strength of your business, the more likely you are to not have your bank decline the request.

In addition to overdrafts, there are other options that may be more suitable for your business.

If you invoice other businesses for payment at a future date, the chances are you have a lot of your potential cash tied up in these debtors. There are many franchises where the cash from these invoices could be released today – a process called factoring. This will release up to 85 per cent of the value of your invoices on the day you invoice your client with the remaining balance paid when the invoice is paid.

So, if you invoiced £10,000 today, typically you can draw up to £8,500 straight away into your bank account with the remaining £1,500 when you client actually pays the invoice. Whereas an overdraft is for a fixed maximum amount, with factoring the more sales you achieve means the more invoices you raise and the more finance you have access to.

While most businesses went through a cost cutting exercise over a year ago, one strong point of advice is do not buy fixed assets out of your cashflow even when business is going well without getting some professional advice. In many cases you are best to finance or lease items like company cars and retain the cash in your business for cash flow purposes.

At Anglia Finance, we recommend in the first instance to always approach your bank if you have a cashflow requirement. However, it is always good to get a second opinion and we are happy to have a free chat on the telephone about the options that may be available to you.

Indeed, we have exclusive deals with a number of providers for factoring that are not available by other providers or by going direct which we are more than happy to set up for you.

Written by Liam Walker (pictured)