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Putting capital to work

Some businesses (particularly those that operate largely or exclusively online) have managed to trade as normal during the coronavirus crisis. Unfortunately, most small enterprises don’t fall into that category and therefore need to do whatever they can to minimise the gap between assets and liabilities.

The scale of the challenge can be seen in the difficulties faced by business dealing with unpredictable receivables from customers seeking to delay expenditure as they face their own cash flow issues.

One of the main lessons of the coronavirus crisis for financial controllers is that foresight is crucial to ensuring the survival of any business at any time and even more so during extremely difficult trading conditions.

Regular review required

One of the most useful steps a small business can take to maximise its working capital position is review existing facilities on a regular basis and explore options such as sale and leaseback, where an asset owned by the business is sold to someone else and then leased back to the business.

Reviewing bank facilities is an exercise that might be undertaken only when a large customer deal is secured or a business plans to change bank, but in most cases it should be done more often.

These reviews will usually confirm that the current arrangement is the most cost-effective, but potential savings made could make the difference between having to lay off employees and retaining valuable members of staff.

Don’t sell yourself short

As we have discussed in a previous blog, offering customers discounts for early payment of invoices is an option for improving a business’s working capital position and can be particularly appealing to relatively new enterprises where cash flow is slow.

However, most customers will demand a reduction of at least 10% in the amount due, which can have a knock-on effect on the accuracy of financial forecasts and revenue projections.

Small businesses need to be smart about how they manage payments. Regular late payers may try and use this as an excuse for demanding discounts for merely settling invoices on time, while some customers may demand ever greater discounts and assume the business would be unwilling to refuse for fear of losing their business.

Take a smart approach to payments

The old adage that ‘cash is king’ is especially true during times of uncertainty. Over the last 12 months, releasing trapped working capital has been a top priority for businesses unable to sell products and collect receivables in the same way they would have done prior to the pandemic.

One option when money is tight is to categorise suppliers in order of importance and prioritise payments to the most important – those without whom the business would not be able to continue to trade.

Among the many benefits of using a cloud-based accounting solution such as Big Red Cloud is that it streamlines the management of receivables and payables. By focusing on a single solution and moving away from inefficient spreadsheets, businesses can simplify their working capital management.

Marc O'Dwyer

After completing a Graduate program in Marketing, Marc’s impressive sales career began at Allied Irish Banks, Pitney Bowes and Panasonic where he received numerous Irish and European sales performance awards and consistently exceeded targets and expectations. In 1992, Marc’s entrepreneurial spirit led him to set up his own business, Irish International Sales (IIS). Initially, this company was a reseller for Take 5 Accounts and Payroll software. Within four years, IIS became the largest reseller of Take 5 in Ireland, acquiring four other Take 5 resellers. He also found time to set up two mobile phone shops under the Cellular World brand and a web design company offering website design services for small businesses. In 2001, he bought the majority share in a small Irish software business, Big Red Book. At that time, the company was losing money. The company became profitable within two months, and Marc then acquired a payroll company to compliment Big Red Books Accounting products. In 2003, IIS were appointed as Channel Partners with SAP for their new SME product, SAP Business One. Marc sold his Take 5 business and concentrated on developing this new market for SAP As a result, by 2007, IIS was recognised as the largest Channel Partner for SAP in EMEA (Europe Middle East and Africa). In 2008, the IIS Sales Manager bought the Company from Marc in an MBO. He launched Big red cloud in June 2012, the online version of big red book, to date the company successfully converts 59% of trials into sales and the number of customers is growing rapidly. Marc continues to run both Big Red Book and Big Red Cloud which now support 75,000 businesses. He is a very keen sportsman, having played rugby for 20 years, represented Leinster at under 16 and under 20 levels, and league squash with Fitzwilliam Lawn Tennis Club for 10 years. Marc has competed in 11 Marathons, including the London and Boston Marathons, and has completed several Triathlons and Half Ironman races. He has also completed six Ironman Races in Austria(x2), Frankfurt (Germany), Nice (France) , Mallorca (Spain) and Copenhagen (Denmark)

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