Top tips for better working capital management

Top tips for better working capital management

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Posted by Hugh Williams in In practiceIn business on Mon, 06/12/2010 – 14:44


Cash is the number one priority for businesses and yet many CFOs are afraid of leading the charge when it comes to working capital management initiatives. Hugh Williams explains why it’s time for CFOs to get their hands dirty.

A lot of firms are currently undertaking some initiative to better manage their working capital because they cannot fund their businesses in the same way as they did in the past. Credit is either too difficult to get or much more expensive than before. Most have taken short term measures to stem the flow of cash (paying suppliers more slowly, getting money in faster from customers, and indeed cutting jobs) but these measures are running out of steam and are bad for long-term business relationships and for the wider economy.

Successfully managing working capital requires an executive sponsor who can mediate across a range of operational and financial functions, and it’s the CFO who has the best chance to lead this effort and make it work. Unfortunately for many of them, this falls outside their comfort zone, since it requires complex planning skills, and as a result many businesses are missing a huge opportunity to improve their profits.

The low-hanging fruit
Most working capital management initiatives nowadays focus on finance wanting to get its hands on the cash tied up in finished goods stock and anywhere else that they have significant inventories – and who can blame them? However, CFOs need to bear in mind that excess stock is just a symptom of poor internal policies, silo-based behaviour, cross-functional mistrust, and blind risk-taking. So getting out the big scissors to cut stock will not stop it from coming back, yet it will unwittingly create significant supply chain problems for the business which will far outweigh the temporary savings that have just been made.

In some cases there are massive shortages of supply (and lost sales) because businesses have cut people (for people, read capacity); poor customer service and product availability because stocks have been cut blindly; and badly controlled new product introduction (lost sales, obsolete stocks) because demand and supply chain planning is poor.

Conflicting KPIs are the greatest enemy of successful integrated business planning (IBP). In most companies management gives each departmental silo in the business a target to achieve that it is hoped will drive the business towards its goal.

Dr Eli Goldratt, author of The Goal, once said, “The sum of the local optimums does not equal the global optimum”. There are examples almost everywhere where businesses still think this is the way to manage and it usually doesn’t work. “A fair day’s work for a fair day’s pay,” they argue. Yes, but only to produce something the customer wants today, not at some point in the future. That’s why we have so much stock!

Finding the high-hanging fruit

If CFOs want better working capital management, they must step forward to lead end-to-end supply chain management, and not just issue unrealistic dictates – or worse still, wait to count the cost. They must understand, embrace and drive forward IBP and really get involved in the value or supply chain rather than marginalising this as some kind of ‘trucks’ and ‘sheds’ logistics planning to delegate downstream.

Today, IBP depends on purging the silo mentality and removing departmental KPIs that are local optimums. Sales and operations, for example, work at cross-purposes in too many companies and become adversaries – this needs to stop. These should be replaced by performance measures and drivers that make everyone work together towards the same end. These measures will beat a path to what I call ‘the high hanging fruit’. We all know the fruit at the top is the best and juiciest, but it also the hardest to get to.

Executive sponsorship is essential. CFOs, supported by their CEOs, must lead the culture change that accompanies integrated planning efforts visibly, vocally and physically. They cannot afford to pay lip service to this, otherwise they will rank alongside those many companies who have tried and failed because top management was not fully engaged. It is a long road that will take patience and persistence and continued investment, probably over a few years. In the first 12 months, you can just about get the process up and running. But those who have done this successfully will tell you they had not realised the potential size of the prize until they got to the top of the tree. The fruit up there is indeed much juicier than the stuff down low that everyone else is picking.

Hugh Williams is the managing director of UK-based Hughenden Consulting and has 25 years experience advising global companies like BP and Baxi on managing working capital.



The seven Cs of business success for 2011

The seven Cs of business success for 2011

Posted by Jon Baker in Business trends on Fri, 03/12/2010 – 09:49

  • Seven observations of how successful entrepreneurs continue to grow their businesses in difficult times
  • How directors can modify their own natural behaviours to help them meet business goals
  • What directors should look out for and avoid when growing a business

The business community is buzzing with concerns of how firms will perform next year after many experts have forecast a second financial dip. Jon Baker applies 25 years of training, coaching and observing behaviours to respond to the cloud of doubt.

Everybody has a choice. They can minimise risk and take a leaf out of the book of successful entrepreneurs or worry themselves back into start-up mode. It’s a bit like circumnavigating the globe, you can decide to sail the seven Cs: cash, concentration, control, cooperation, collaboration, culture and coaching, or give up, miss a few out and never accomplish your aspirations.


Cash is all about risk and the value or cost of potential outcomes. Successful entrepreneurs know they are never short of ideas, which exposes them to making 20 decisions in the hope one of them will yield a good result. This is not spreading risk. Lowering risk is about lowering the probability of something going wrong. You will notice that Lord Sugar for example, surrounds himself by conservative advisors, who appear to have an innate talent for ‘grilling’ ideas.


Write down your top 20 ideas, shortlist and refine them until you have three strong ones. Why make 20 bad decisions when you can make three good ones?



Concentration is the second C. Good entrepreneurs will have definite one, two and three year goals. Those who started setting clear goals a few years ago are far more likely to have reached their target size, revenue and/or customer base than those who have not set such objectives.


These entrepreneurs will manage their natural tendency to juggle too much and discipline themselves to concentrate on delivering or completing one thing well at a time. The most accomplished business people only take on companies or new offerings that are strategically linked, i.e. where one enterprise feeds another. If this involves risk taking, they will focus on the activities required to fill their sales funnel rather than focusing on the sales themselves.



The third C is control. It plays a vital role in successfully navigating a company through economically uncertain times and often means controlling a natural appetite for adventure. In practice this means balancing risk and reward, so the approach to new opportunities and the ability to scale to accommodate increasing sales are of fundamental importance.


Those who have mastered the art of such a balance will be extremely sales margin conscious. Out-of-the-box thinking and flexibility will pave the way to more secure margins and customer longevity. Quieter business periods will be used to systemise business processes designed to make commercial headway. Watch out for self-acclaimed entrepreneurs who have not stopped to address systems weaknesses which can result in instabilities that are evident to customers and onlookers.


Cooperation is the fourth C. The proverb ‘birds of a feather flock together’ dates back to ancient Greek philosophy and has stood the test of time. Successful entrepreneurs will not be serial networkers, they will select the communities in which they build relationships very carefully to avoid those who could potentially let their business down. They will look for others who do not display panicked behaviour and innovate to help ensure high-quality service and product delivery. When an appropriate network has been established the fifth C comes into play – collaboration.



Although creating collaborations can be low cost, the consequences of getting them wrong can be astronomical. If all business owners were surrounded by commercially strong, honest and highly effective peers this would not be a problem. Unfortunately this is not the case, particularly towards the end of recession or if going into the proverbial second dip. This is why the fourth C (cooperation) is crucial to the fifth C (collaboration).


The combination of the following two facts have generated disproportionally high risks to entrepreneurs looking to collaborate. Fact one: wave after wave of redundancies have fuelled the set-up of many consultancies. Fact two: entrepreneurial directors generally outsource the things that they are disinterested in or take too long.


Although there is enormous strength in understanding your own weaknesses and mitigating them through collaborating with consultants and other companies, getting answers to difficult questions before anything progresses has become pivotal to success. More importantly, getting it wrong reduces revenue while damaging your reputation and brand.


Those who used to work within larger organisations are not necessarily the best small business advisors. Ask about their achievements within your type of SME environment and where are the results? A recent change of career or accreditations without long-standing experience should ring alarm bells if you are about to collaborate with another business or entrust a consultant with your company’s direction.



The sixth C is all about culture. The most successful directors of 2011 will be those who have recruited well and optimised all employees. They will have involved staff in quarterly milestones, explained how various achievements link together and each employee will have bought into the company direction. When things go well, this approach delivers a sense of achievement across the workforce. The days of restricting the objectives within your business plans to a few board members are over.



The final C is the importance of coaching. Think back to those who supported the progress you have made in your own career and business. Who has taught and guided you well? Regardless of if they are a passive mentor or professional business coach, think about how they have or can help you attract and retain the right people, customers and suppliers. If they enthuse about the direction you set, people power will propel your company forward.


Jon Baker is director of venture-Now and a business coach.


Guidance on taking over a new company

Guidance on taking over a new company

Often it’s easier and more convenient to take over an existing company rather than opening a new company. Reasons for this vary and the major ones are:

  • The company has a history – This should always be positive.
  • There is a bank account in existence. As opening a bank account can take up to 5 weeks and requires a number of bureaucratic steps this is a major advantage.
  • There may be an overdraft facility which is unused. This is a distinct advantage although the bank may reassess on a sale of the company
  • The company is registered with HMRC as a taxpayer. Again bureaucratic and time consuming steps are eliminated
  • The company is registered for PAYE and VAT with HMRC. Again time and effort is saved.
  • There are supplier terms in place. Suppliers may reassess on a taking over of the company.

There may be more reasons more unique to individual circumstances and these should be reviewed to ensure maximum benefit is gained.

Taking over a company has however some risks if the company traded at any time previously. Broadly but not exclusively they are:

  • Poor credit history, possibly with CCJ’s
  • Legal claims, potential or actual,  against the firm
  • Undisclosed/potential debts against the firm especially HMRC
  • Non-compliance with HR legislation, the Company Act and the various Tax Acts all giving a potential liability against the firm and/or directors
  • Disgruntled employees may create difficulties with the takeover.

If taking over a company where the history is not known and/or trading has or is taklng place a due diligence exercise is a must. These may not uncover all potential issues but will eliminate the obvious ones and reduce the risk. Where trading is taking place it’s best to get professional help with the due diligence.

Where a company is taken over from family many of these issues will become moot but some examination is still recommended.

For more information or help contact Richard Terhorst at 08450095360 or E-Mail

Cash flow is the lifeblood of all businesses

Cash flow is the lifeblood of all businesses and accordingly this must enjoy a first priority in any management team. The basic cash flow rules are;

  1. Always ensure there is cash

Running out of cash will result in business failure. If the business does not generate enough cash then borrow if possible. Note your cash flow projections must include repaying any loan taken.

  1. Cash Is King.

Manage it as it is very unforgiving if you do not. It keeps the business alive.

  1. 3. Know Your Cash Balance.

Always know your cash balance and most importantly it is not the balance what is shown on your bank statement. Even the most experienced person will fail if they are making business decisions using inaccurate or incomplete cash balances.

  1. 4. The bank balance is not the cash

The true cash balance is that which is in your books. Bank and cash balance are two different things. They are rarely the same.

  1. 5. If not you get someone else

A true cash balance can only be obtained by keeping your cash book right up to date. If you cannot do it or have the time get someone else. Remember know your cash balance.

  1. 6. Cash forecasting

Financial people  use a 13 week rolling cash forecast. Even with the cash difficult to predict,t it is amazing how a 13 week forecast identifies pinch points. This is a start of managing your business and not being managed by it.

  1. 7. Have cash flow projections and planning

Plan your weekly and monthly cash flow in and outs. Weekly planning allows you to talk to suppliers helping you over pinch points.

  1. 8. Cash flow problems do not just happen

Many SME owners are surprised when hitting a cash flow problem because they failed to anticipate and plan to deal with it. Always do your projections working from up to date and accurate data. The surprise will then be how relitavely easily it was to get through the pinch point.

  1. 9. Use expertise

Not all SME owners are comfortable with figures or have the time. Bookkeepers often are well capable but get real expertise to help or oversee. Wrong information will lead to wrong decisions.

Once managing your cash flow you can concentrate on your customers who are the cash generators in the business. Focus your talents on them and through cash management reduce the worries cash flow may give.

Should you want or need more help in cash flow planning and/or forecasting then call;

Richard Terhorst at 08450095360 or E-Mail at