Cash is King (and Jack and Queen too)

Cash is always important, but sometimes its more important than other times.



Take the present economic climate; some businesses are finding their own customers are taking longer to pay, meaning, unless they are cash rich, they face a lack of funds to pay their own suppliers and overheads. The Bank overdraft may, or may not be available to plug the gap, if it is then its likely to be expensive. If that option is not available then pleading poverty has implications. Next time you need materials will your supplier want some cash up front? Will the employees morale be adversely impacted by their wages being delayed or cut? Given the state of the economy the staff are unlikely to leave – there is hardly a plethora of jobs around for them to walk into. So, falling morale, resulting in lower output can only exacerbate the issue; all because of a shortage of that valuable commodity – CASH.



What can we learn from a big hairy corporate like British Airways feeling the pinch? Between 31st March 2008 and 2009 BA’s balance sheet shows a reduction in the total of cash, cash equivalents and interest earning deposits from £1864m to £1381m. That’s £483m flowing out of the business as the 2009 figures reported a pre tax loss of £401m. BA’s management are taking action, they recognise that income is not going to recover quickly so costs have to come under the microscope. In June this year they announced that some 7,000 British Airways employees have volunteered for schemes in support of the airline’s cost reduction programme. Their actions are expected save the company up to £10 million. In early July BA’s pilots voted to accept a 2.6% pay cut . Redundancies amongst cabin crew and administration staff may follow, the former voting recently to reject plans to cut jobs and freeze pay.



So what should businesses feeling the credit pinch be reviewing?

• Can you re-negotiate terms with the people you owe money to?
• Can your customers pay you quicker? Is it economic to offer discounts for early payment, or accept stage payments to get some cash in quicker?
• What about asking for discounts, that includes your staff, will they work for less to help you through any crisis? Is a lower paid job worth more to them than no job?
• Do you have any obsolete stock that you may be able to offload to generate some cash (and save some storage costs)?
• Do you have any liquid funds of your own to invest? Be cautious about throwing good money after bad. The Channel 4 series ‘GERRY'S BIG DECISION’ gives an idea of the due diligence involved in deciding if an investment is prudent
  

A certain amount of financial literacy is key, every decision everyone in the business makes has a financial implication but the truth of the matter is people rarely appreciate this. Finance training has a dull and boring reputation and is considered by most as best left to the accountants. Ignorance is no defence; www.xlearning.co.uk