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RICS PROPERTY JOURNAL
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MARCH /A P R I L 2 0 1 5 3 5
RESIDENTIALCASHFLOW
Les Pickford talks to Tim Collerton, partner at business
advisers Wilkins Kennedy
Cash is king
It does not matter how
profitable you are or how
many assets you have,
if you have no cash you
are likely to go out of
business. That is why
you need to identify any
problems before they arise and use a
cashflow forecast. This will help spot any
potential shortfalls and impending calls
on cash so you can cover your funding
requirements.
Being short of cash means you can
quickly enter a downward spiral you will
struggle to pay your bills, get a bad credit
rating, potential funders may not want to
lend you money or impose higher rates/
stricter terms, you will get a bad reputation
in the market and suppliers may not
want to work with you or ask for up-front
payment. This all means that you may have
even less cash to pay your staM, suppliers,
tax and VAT demands and lenders.
Once you enter a downward spiral,
you can easily be distracted from running
your business. You should be driving it
forward, not juggling cash payments
and receipts; you will be working in the
business, not on it.
Juggling your cash can also put extra
strains on you and your business. For
example, if your staM see you constantly
robbing Peter to pay Paul, they could
become unsettled and you risk
losing your best employees to a more
stable environment.
penalties, all of which could aMect your
cashflow and margins
8. Using a forecast will help identify if
you have more cash than you need.
Then you can start thinking about
how to invest it to help your business
grow. If you both own and manage
the business, a cashflow forecast
forms part of your personal wealth
management so you know what you
can take out of the business
9. Do not be afraid to chase a debt.
Contact the customer to say: I hope
you do not mind, but our invoice is due.
Can you tell me if it is on the payment
run this week? Many clients manage
their cashflow by not paying a bill until
it gets chased.
The cashflow paperwork and control
systems behind your business might not be
exciting, but ignoring them may mean you
do not have a business at all. R
Practical advice1. Once you have prepared your cashflow
forecast, do not shove it in a drawer and
forget about it. Your financial situation
is certain to change for instance, a job
will not come in, new work will be won,
someone will pay late, an invoice will get
lost in the system so your forecast
will need reviewing and updating
regularly. The longer you leave it, the
more you risk it becoming your nemesis
one that is easy to avoid
2. Monitor your debtor days (how long
your clients take to pay their bills) and
creditor days (the time you take to pay
your suppliers). If either of these are
going in the wrong direction it is going
to aMect your cashflow position
3. Invoice on time. Converting your
work-in-progress to an invoice as soon
as possible means that your cash will
come in sooner
4. Always agree payment terms up front,
including any staged payments
5. Be specific about what you are actually
going to do for your fee. It is easy not to
agree your scope before works starts,
but if the edges get blurred because of
extra work, and you produce a surprise
fee note that is over the original
estimate, you could have a problem
6. Prepare a budget for all your jobs and
use it to monitor progress to stay in
control, you must match your budget
with actual expenditure. If there is
going to be an overrun, you need to
know as soon as possible so you can
do something about it. It may mean
resourcing certain items at lower cost, or
having a dihcult conversation with your
client about needing to charge more
7. Carry out credit checks on your clients
and your main suppliers. You do not
want to be part way through a contract
and then find your supplier for materials
or staM has gone into liquidation; in
that case, you will need to find another
supplier at short notice, which could
mean extra costs, time overruns and
k Tim Collerton
Les Pickford is a Freelance Writer and Editor
[email protected]
Related competencies include Accounting principles and
procedures, Business planning,
Managing resources
Once you have prepared your cashflow forecast, do not shove it
in a drawer and forget about it
