Cash Flow problems – how can an advisor help without adding to the problem?
Written by David Davies
I have always wondered why when businesses approach their bank or other financiers with cash flow problems, the advice is to increase the cash flow issues by getting professional advice. The costs of which immediately worsen the cash flow as the adviser frequently asks to be paid in advance because of the cash flow issues!
How do SME’s solve this conundrum?
In my experience it is important, not only to get the right advisor, but to ensure that they can actually help positively to impact on the problem. Whilst at the same time, helping their client to understand their finances so as to leave with a legacy of knowledge and sustainable solutions.
In a recent business I was involved with, we were under pressure to increase revenue to solve our problem of month on month losses and a deteriorating cash flow. Our costs were mainly fixed so that if revenue increased and we maintained our added value and gross margin, this would increase our EBITDA and improve our cash flow. We may also reduce our stock days and therefore our cost of sales added more cash.
I am fortunate, that after over 50 years in business I have learnt more than I wanted to from excellent accountants and finance directors – but how many small or medium size businesses driven my entrepreneurs would understand these terms and understand how they fit into their business.
In addition to the advice that we needed to grow our revenue, the consultant then explained how we should do this:
1. Improve customer service through training (extra cost)
2. Improve facilities (extra cost)
3. Expand menus (extra cost)
4. Increase marketing (extra cost) and so on.
Each piece of advice adding to the original problem of our initial cash flow problem by increasing spend ahead of revenue growth.
So, what is my solution?
I would not know until I met with the client, understood their business, their finances and their systems. Then I would need to see if there was a sustainable solution and whether I could help or not. If I could I would need to decide, do I want to and does the client really want to work with me. In my experience, after looking over the financial accounts and a half day meeting with the client can generally answer those questions.
So, if I think I can help, and I think I can work with the business, I agree a fee and short-term strategy to solve the problem.
Success is based on pre-agreed targets (KPI’s) and my fees are also based on the same success criteria. Meaning the client knows that I will only advise if I think we can solve the problem together and if we succeed, they will be able to pay my pre-agreed fees.
Hubbub operates this way – if we are asked to solve a financial problem – why start by adding to it.