Having a tight grip on cash-flow planning is important for small to medium-sized businesses (SMEs) at the best of times.
But with the recent coronavirus (Covid-19) means that most SMEs urgently need to review and continually update their current assets and income, balancing these against current and future expenses and liabilities. Cash-flow consultancy is a value-added service that you can be offering to your clients.
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Cash-flow: the size of the problem
If a business is in its early years or has been concentrating on growth (and therefore continually reinvesting) they are unlikely to have a buffer of extra cash to see them through the tough times, let alone the entirely unanticipated times.
Small and medium-sized businesses make up more than 99% of all UK businesses. According to the Covid-19 Business Impact Tracker study by the British Chambers of Commerce, most small businesses have three months or less of cash reserves with which to try and survive.
Should you be offering cash-flow consultancy?
If you’re an accountant looking after small businesses then you should consider offering cash-flow consultancy as an additional service for these reasons:
- It’s another service that you can charge for
- You’ll be giving the advice to help ensure the health and survival of the business (and therefore your client)
- It can help reduce the stress that the business is under
- It positions you as the expert
- It will help you to build closer relationships with your clients
- It sets you apart from other accountants
- It could help you gain new clients
- There is good technology available to help you prepare forecasts and reports
Responding to the pandemic – scenario forecasting
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Cash-flow consultancy best practice: A Covid-19 case study
Kevin Drew tells us how his accountancy firm Ascentant has been assisting small businesses to conduct cash-flow consultancy to help them survive Covid-19.
“We have been working with Local Enterprise Partnerships to signpost clients to webinars and funded training to make them more financially aware. When we ask most clients how many months of cash reserves they have or if they are cash-flow positive or negative, they do not know.
Educating clients on their finances, business continuity and scenario planning is key to them making long term business decisions to help their business survive. Awareness around cash-flow is key to this.”
Cash-flow consultancy best practice
“Ascentant have been offering free reviews and signposting consultations with clients to review their pain points, project their cash reserves in a worst-case scenario and provide them with advice, templates and resources to begin undertaking their own financial reviews.
We will project a client’s cash-flow from their financial records over a 12-month period and then start to factor in what may happen if they lost a large or key client. We will also look at procurement to identify lower-cost suppliers or other cost savings to save cash.
Making clients think about things over an extended forecasted period and not just day-to-day really helps them to start managing their business, set goals and help it survive rather than just running it ad hoc with no visibility of KPI’s or knowing where funding will come from for the next rent or payroll payment.”
- Where the objective might previously have been growth or profit-focused, the priority now needs to be cash-flow. Your client might need an explanation that the problem with monitoring profit is that it doesn’t take into account debt repayment, equipment payments, taxes or cash received.
- In cash-flow forecasting, you will need to analyse the immediate needs and the future needs of the business. For Covid-19, the priority needs to be on surviving the short-term situation, particularly if businesses are waiting on funds and loans.
- Identify the business-critical payments. Avoid any unnecessary spending and review direct debits and standing order payments.
- Closely review savings, investments, and income withdrawals to see if they can be altered.
- Conduct scenario analysis to consider the best and worst-case scenarios.
- As well as scenario analysis, the cash-flow forecasts will need to be regularly monitored. Apply updates to both scenarios as soon as any changes occur.
- Always take into account that the personal finances of a small business owner and their organisation will inevitably be inextricably linked.
Should you charge for emergency advice?
During the pandemic, a lot of companies and business proprietors have needed emergency cash flow planning. This has created a huge workload for accountants, and there are differing views over whether accountants should charge for this.
Paul Donno FMAAT, AAT Licensed Accountant says: “To help our clients obtain essential funds we have decided to extend our services to include forecasting and therefore have not charged extra for this service. Our view is that we need our clients to pull through this with us and to burden them with additional fees would be wrong.”
David Fredericks says: “As an ongoing chargeable service there would not be any extra charge to clients. However, it will be a business decision whether or not other clients are charged the full fee or a COVID-19 fee.”
John Thornton, AAT President advises the following approach for enquiries from distressed companies: “If you have capacity, be upfront about what you can do and what the cost implications would be. If you can’t help them get out of the way and let them go to somebody else who can.
“Part of being a good professional is to know when to stand back. People in difficulty need to be quickly connected with people who can help them. If you can’t do it, stand out of the way and let them go to someone who can.”
Dealing with creditors and debtors
“We encourage clients to be proactive on chasing debts, reviewing aged debtors, and to put in place cash collection tools such as GoCardless direct debits for monthly recurring payments.”
Advise your clients to:
- Send invoices early
- make it easy for people to pay them
- look for early payer discounts
- chase invoices early
- agree on clear payment terms and plans.
Make sure your clients pick up the phone and talk to people. They don’t need to tell creditors every detail about their situation but they should try to come to a mutually agreeable solution. The last thing they want is to create bad relationships with suppliers or worse still, have their debt sold on. And they are more likely to be moved higher up the list for debtors if they call them.
Planning and contingencies
“We try to give clients little tips such as saving the VAT when a customer pays a bill in a separate savings account so that they have the funds available to pay their VAT bill rather than spending it.”
- Identify possible changes to the sales mix or business model. Look for alternative revenue streams. Are there products or services that can generate cash-flow quickly or can they move from bricks and mortar to online?
- Check for cost efficiencies in the delivery of products and services. Focus on inventory control and lease (don’t buy) where possible.
- Look for short-term revenue strategies like selling gift cards, encouraging pre-orders or driving discounts (although this should be done with caution).
- Explore the support options available. Government relief funds and loans or overdrafts and credit from the bank.
- Consider furloughing staff or making redundancies if necessary.
- Cash-flow is of great concern to most SMEs right now due to the effects of Covid-19.
- Consider offering cash-flow consultancy as a service to help your clients or to attract new ones.
- The cash-flow consultancy will need to be thorough, updated regularly and include suggestions for changes that can be made quickly within the business.
Most SMEs will be in a situation now where they are (or should be) keeping daily tabs on their cash-flow. You could be offering to help as an extension of your services to them.
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Sophie Cross is the Editor of Freelancer Magazine and a freelance writer and marketer at Thoughtfully.