CASHFLOWHow do you ensure your business survives

Introduction to cashflow

We will go through the essentials of cashflow

management and also provide some advice on

how to improve your cashflow management.

Each organisation is unique so these are

generalisations and you should consult with an

accountant or finance professional for more

guidance for your specific business.

How to measure cash?

What is cash?

'Cash is legal tender in the form of banknotes and coins that

are readily acceptable for the settlement of debts.

Cash flow is the movement of cash into and out of a business.

Cash does not include anything by the business that cannot be

instantly converted into money. Stock, assets such as plant &

machinery, for example, are not classed as cash.

Every business needs cash available in order to pay their bills

and expenses on time, so it is important to balance the timing

and amount of money flowing into and out of your business

each week and month.

Tips

Ideally you will have more money coming into the business

than going out - a cash flow surplus.

One tip is to try to accelerate inflows and slowdown

outflows.

It is best business practice, however, to ensure that

payments are made on time as agreed. This will help your

reputation with customers and anyone else who depends on

your business.

Consider putting excess cash into a savings account if you

are in the fortunate position of having cash to spare.

Types of inflow and outflow

Inflows:

Payment for goods or services

A loan or increased loans or overdrafts

Outflows:

Purchases

Wages, rents and daily operating expenses

Purchase of fixed assets

Loan repayments

Tax liabilities

More Tips to improve inflows

ask your customers to pay sooner

consider payment by standing order / direct debit

order less stock but more often

put up prices / improve profitability

borrowing / getting investment in (short term)

create a cashflow forecast listing:

Receipts - any money that will come in during that period

Payments - any money that will go out during that period

Excess of receipts over payments - with negative figures shown in

brackets

Bank balance at the start of the period

Bank balance at the end of the period

NEA Cashflow Forecast For the purpose of the New Enterprise Allowance

business plan, you are required to do a cash flow forecast for year one.

While it is impossible to predict with any great degree of accuracy what will happen, you should take note of the following:

All forecast figures must be realistic and must take into account any long-term changes or market trends.

Accounting software can help you prepare your cashflow forecast, allowing you to update your projections if there's a change in market trends or your business.

NEA Cashflow

Cashflow – A closer look . . .

Cashflow – A closer look . . .

NEA Personal Survival Budget

Personal Survival Budget

A closer look . . .

Personal Survival Budget

A closer look . . .

Managing customers

Make sure that customers pay on time:

create a debtor policy

issue invoices promptly, and chase outstanding payments regularly.

Consider charging penalty interest for late payment.

Consider offering discounts for prompt payment.

Negotiate deposits or staged payments for large contracts.

Maintain a good relationship with your customers so that you can see any signs that they are in trouble as early as possible.

Managing suppliers

Negotiate the best possible credit terms with your suppliers.

Consider agreements with suppliers, where you can pay over an

extended period of time. Be mindful, however, that such

agreements may involve interest payments.

Taxation

there are Several things that you can do to reduce the pain in paying your taxes.

consider for example, the timing of purchases if you are VAT registered.

you may also be able to make best use of timing and facilities offered by HMRC.

pay your taxes at the last available opportunity, if that helps – ensure however you do pay!

HMRC may agree payments of some taxes by instalments. Call 0845 302 1435 to find out.

Other considerations

run a credit check on your customer.

can you fulfil your order?

is it easy to do business with you?

is your marketing strategy working?

What if you get into a cash flow

crisis?

You can consider some short-term facilities such as an overdraft or a credit card to see you through.

You should be aware, of course that what you have borrowed has to be repaid at some point.

PRICINGMaking sure the price is right

Pricing - Introduction

Of all the marketing problems you

face, pricing is probably the most

important and one of the most

difficult to get right.

As a general rule, it is often better

to price higher than what you think

you can get.

Types of Pricing

Cost Plus Pricing

Very simple method

Competitor Pricing

May be a good starting point

Value Based Pricing

Getting what you can for your goods or service

Cost Plus Pricing

Fixed Cost + Variable Cost + Mark-up

Fixed Cost

These will not change no matter how much you sell. Your rent

for example stays the same whether you sell one unit or a

hundred.

Variable Cost

This will likely increase the more you sell. You may use more

energy for instance when producing more.

Mark-up

Generally a percentage you add on to the cost to arrive at the

final price.

Cost plus pricing is not the best method. Your margins for

example could be eroded that could even lead to a loss.

Competitor Pricing There are three possible price positions take

lower than competitors.

higher than competitors.

same as competitors.

RESEARCH

Some interesting research was carried out by a company

called Caltech, who carried out an experiment with

wine.

There were two types of wine, one was expensive and

the other was cheap (both were the same actually)

Customers had a far stronger preference and recorded

both physical and psychological benefits from the

expensive wine – even though there was no difference.

Value Based Pricing

Price in relation to what product delivers

Hardest to quantify

Requires ongoing work

Pricing Strategies

Economy Penetration

Skimming Premium

QUALITY

P

R

I

C

E

LOW HIGH

L

O

W

H

I

G

H

Strategies to use . . .

Economy

Cheap and cheerful

May consider the best to start with – although it may be

more difficult to change a customers mind when you do

decide to raise prices . . .

Penetration pricing

Consider where you are sure your costs are 30% or more

lower than competitors.

You will be one of the cheaper products on the market

Your product or service has fewer benefits than

competitors.

Economy Penetration

Skimming Premium

Strategies to use . . .

Skimming

Your product / service is different from the competition

You have incurred high Research & Development costs

Your product / service is higher quality / benefit

product will appeal to a smaller group who would be

willing to pay.

Premium

You can achieve a premium position in the mind of the

consumer.

Luxury goods for example. Think about designer clothes.

Definitely the best place to be!

Economy Penetration

Skimming Premium

A note about the way people

think . . .

Would you pay £10 for a product or would you prefer

£9.99?

What’s the difference between the two?

20% more people would go for £9.99 as opposed to £10.

When it comes to products / services with a high

perceived quality however – people may prefer to pay

£24 for example, rather than £19.99. Don’t ask why!

It pays to think as a consumer when it comes to making

your pricing decisions.

Billable HoursCharging for your time . . .

Billable Hours

What is your time worth?

Employee – you get paid for the time you give your

employer.

Self-employed – you can use the same measure

It comes down to the same equation

You may have a different value system, and new ideas

abound – such as volunteering your time. You wouldn’t

be here however if this was your goal!

TIME = MONEY

What is billable? This is down to your conscience – however:

It is best to agree your terms before hand in writing.

Keep a record of time spent on a task. You are

accountable for it.

Consider having a set schedule of costs for you – on an

hourly rate and on a daily rate.

If you charge VAT, don’t forget to quote your price (plus

VAT!)

You should consider over-estimating your time cost (it is

easier to reduce a bill than to increase it!).

Don’t bill for administration, such as making notes of a

meeting that you have had. Rather build efficient systems

to make administration as quick as possible.

Health Warnings!

The material in these slides is presented for information

only. You should seek specialist advice if required. Koshy

& Co and it's staff take no liability or responsibility for

the actions taken by those who have listened to this

presentation, or read these slides and acted upon them.

Thank you . . .

Koshy & Co

Suite 6, Albion House

470 Church Lane

London

NW9 8UA

Telephone : 0330 222 0017

ray@koshyandco.co.uk

www.koshyandco.co.uk