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Keeping your company's cash in your hands

publication date: Sep 30, 2008
author/source: Jonathan Harvie
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Some of you may be trading profitably, others may be struggling. In this market the only thing I would be really worrying about is cash. So what would I be doing? 

Cut your costs 
If you haven’t already you need to ensure that the business cost basis is really lean and mean. The fripperies and optional extras should be long gone. 

Pay your creditors more slowly 
Creditors are an odd bunch! They hate being lied to! Most are happy to agree to being paid over an extended period provided they believe that you will pay. If you negotiate an extended payment plan with your creditors you need to stick to it. 

Negotiate on price 
Some of your creditors (such as the local press) are probably hurting themselves. It may give you some negotiating power. I am sure that they would rather keep your business even reducing the price a little rather than lose it altogether. You have nothing to lose by asking the question. 

Pay the local creditors 
Too often one goes into businesses with cash flow problems and there are a lot of little local creditors who have not been paid. That’s a bad call! Small local creditors can be the first to put the word out that you are struggling. It will do your goodwill no good. 

Change payment patterns 
You may be able to get your landlord to accept monthly rent payments rather than quarterly. You could try to move direct debits to a more favourable time of the month. 

Refinance assets 
You may be able to generate cash by refinancing assets. This of course will come with its own cash cost but could buy you some breathing space. A sale and leaseback of property is but one example. If you are gearing up assets you need to be aware of the impact this might have with existing lenders and the security they have for their existing debt. 

Loan repayments 
You may be able to extend loan repayment periods or negotiate a capital repayment holiday. All will save you cash. 

Small firms loan guarantee scheme (“SFLGS”)
If you need more cash but don’t have the assets to put up as security don’t forget that the SFGLS can be applied for by Estate agents that fit the criteria. Just because your business fits the criteria doesn’t mean that your bank will be prepared to go down the SFGLS route, but it is worth considering. 

Try a rolling three month cash flow forecast 
If cash is really tight you should prepare a rolling three month cash flow forecast on a weekly basis. This will help you really focus on getting the cash in on time so you can pay the creditors at the agreed date. It takes time and effort but it will certainly help you. 

Pipeline management 
This ties into your cash flow forecast. You need to put lots of effort into managing your pipeline to try to deliver the cash flow you need, when you need it. 

Directors’ remuneration 
If you are a director are you taking your remuneration out in a tax efficient manner? If you have distributable reserves you could take your package out by way of dividend. This will save employers and employee’s national insurance, and thus cash flow. It is quite complicated so you need to take professional advice. 

Directors’ loans 
If you have a loan to your company you should consider drawing down the loan rather than taking a salary. The monies will already have had tax paid on them so you won’t need to take so much out. This will save the business cash. By reducing the amount of salary you are drawing you will also improve the profit & loss for the period. This may in turn help lenders help you. 

If your turnover is less than £1,350,000 you can account for VAT on a cash basis. This should help with cash flow. You could consider moving to annual VAT returns. 

If you need to spread your VAT liabilities don’t just wait till they fall due, call the Inland Revenue and ask if paying by instalments would be acceptable. Though they are now tougher than they used to be it is normally possible to spread VAT and PAYE liabilities. 

Tax losses 
If you have made losses you may be able to get back some tax paid when you were profitable. Any tax repayment will help with cash flow. You need to get your accounts prepared quickly. In some cases it may even be worth shortening or lengthening your accounting period. 

Consider merger 
It may be possible to merge with another Estate Agent. When you put the businesses together you may be able to obtain the same geographical coverage but with a lower cost base. 

Talk to your bank 
You need to keep your banker informed of your trading position and cash flow forecasts. If he can, he will try to help you manage your business out of difficult waters. He will only be prepared to do this if he feels you are organised. 

The one thing you must not do is to exceed your agreed bank facilities. You will immediately trigger punitive rates of interest and penalty excess charges. 

Take advice If you are struggling you should take professional advice. There could be serious repercussions if you continue to trade whilst insolvent. Sole traders and partnerships have unlimited liability but a director of a limited company could also become personally liable for the debts of the company if found guilty of wrongful trading. 

Jonathan Harvie is a Chartered Accountant, an Associate Member of the NAEA, a partner with Hazlewoods LLP, he heads a team of tax and business advisers, specialising in advice to Estate Agents. This article has been prepared as a guide to topics of current financial and business interest. 

We strongly recommend you take professional advice before making decisions on matters discussed here. No responsibility for any loss to any person acting as a result of this material can be accepted by us. 

For more details contact Jonathan Harvie on 
01452 634800 
or email