Those four Cs are increasingly critical in such uncertain economic times. Murray Booker, a 30-year veteran of printing industry finance, says: "In all my years I have never seen anything like this. The banks are so unsure. The terms on which they are lending are getting tougher and tougher, and some are effectively pulling out of asset finance by making it so unattractive".
Recent business news stories have only served to heighten the importance of maintaining a healthy cashflow. In Lloyds TSB’s twice-yearly business confidence survey, the number of companies reporting cashflow issues was the highest in 16 years. At the same time the bank said that smaller businesses were depositing record sums as canny company owners began hoarding cash in order to weather stormy economic times. The Federation of Small Businesses found that cashflow at SMEs was suffering as large companies stalled on payments to their smaller suppliers, with some large businesses even going so far as formalising longer payment terms for their own benefit.
No wonder cashflow is rightly described as the lifeblood of business – without it, things soon turn critical. And failure to control cash by carrying too much stock, paying suppliers too promptly and allowing customers too long to pay is consistently cited among the top reasons for business failure. So what are the secrets to healthy cashflow, and where do print businesses get it wrong?
Cash is critical
Having accurate information about the cash cycle of your business, and examining cashflow trends on a regular basis, should form a fundamental part of the day-to-day management of any company. It’s equally important to think ahead and plan for the impact of any likely problems. "Owner-managed businesses should understand and keep close to the finances of their company. Time and time again I hear people say ‘I wasn’t made aware…’ Well it’s your job to be aware," says Mike Hudson, commercial director at Eurofactor.
Banks, financiers and key creditors want to be informed of any bad news or upcoming issues sooner rather than later. Leave it until the last minute and you will be less able to negotiate good terms, and the company risks appearing unprofessional, or worse, chaotic and out of control. "I have lost track of how many times we get asked for help because there is a big paper bill, or VAT bill, or corporation tax bill that has ‘crept up’ on someone," says David Bunker, director at Close Print Finance.
Warning signs that things are going awry are akin to those in personal finance when outgoings start to exceed incomings. If the company’s bank require-ments are starting to grow monthly, and the overdraft is regularly being dipped into and is moving closer and closer to the limit, then action needs to be taken to improve the company’s cash position before things spiral out of control. "Whatever you do, don’t sit in your office biting your fingernails," advises Paul Holohan at Richmond Capital Partners. "Some people just panic. It’s important to seek help early."
Keep your promises
Beware too of reneging on promises. Attitudes are hardening at banks, paper merchants and other key suppliers and if a company has developed a reputation as a bad payer that is failing to stick to agreed payment schedules it will receive a far less sympathetic hearing than one that has been upfront about its issues and has kept to its payment plans.
Divide trade debtors by sales, then multiply by 365 and you get a company’s debtor days, and Grant Thornton partner Daniel Smith notes that all too often he sees print companies with debtor days in the high eighties and above: "The target must be 30-45 days, but very few printers achieve that. Are your customers happy with the work and able and willing to pay for it? Until you’ve achieved that, you remain vulnerable to bad debts, credit notes and interest charges on your overdraft."
Ready money
Factoring, or more likely nowadays, confidential invoice discounting, can help by releasing the cash sooner, typically 80% upon presentation of the invoice. This can be a particularly effective tool for fast-growing businesses that need ready access to working capital, but if turnover is falling it’s not such a good option, and Holohan cautions that because payments are dependent on invoices, if you have a poor sales month the draw down will be lower, and you could end up not being able to cover your overheads. Any increase in bad debts or slow payers will also have a similarly adverse impact.
In an increasingly short-run world where many printers are dealing with a larger number of smaller orders, or looking at doing business online, some are shifting to more rapid payment systems. Tony Nalder is marketing manager at Cardsave, a buying group for credit card processing that now has hundreds of printer merchants, with a further 50 signed up in recent weeks.
"The beauty of card payment is the money is in your account in two or three working days. It’s a simple and fast form of automated banking, compared to probably thousands of printers across the country who are waiting 30-60 days for payment or not getting paid at all, he says. Accounts people are getting switched on to this – the impression I get is that at the moment printers spend a lot of time on admin and sending invoices out again and again."
Schemes focused specifically on the industry include the Paper-Plus confidential receivables finance service developed by Eurofactor in partnership with merchant PaperCo. The buyer (which could be a printer, print manager, or end-user such as a large corporate) can increase their purchasing ability through volume and early settlement discounts. PaperCo benefits because it is paid more quickly and can increase sales volumes without increasing its risk, and kinks in the supply chain currently being caused by credit insurance limits are ironed out. "I provide cash. That’s my commodity," says Eurofactor’s Hudson. "We are getting a lot of enquiries about it at the moment."
BPFL director Booker is also recommending the general wholesale credit service provided by Javelin, which is part of Octopus Investments. It’s an easy bolt-on facility and printers can dip in and out of it. It’s almost a no-brainer.
Simon France, head of sales for the print division at HSBC Equipment Finance, says: "Print is probably a more difficult sector to be in because of the capital expenditure required, which takes a chunk of money every month and is a bigger burden than on a typical business because it’s so capital intensive. This area is also highlighted by Grant Thornton’s Smith as one of the biggest reasons firms find themselves ending up with cashflow issues. The root cause of so many cashflow problems is getting the equation wrong when putting in new equipment – firms forget how much cash they have to generate to pay the leasing charges, and haven’t thought through how to increase margins commensurate with the increase in monthly outgoings," he warns.
Refinance benefits
Smart money management is critical and asset refinancing can be employed as a useful short-term way of injecting some much-needed cash into a business. "Probably every other proposition I’m looking at at the moment is an asset refinance," notes BPFL’s Booker. "If you have kit sitting there, you can refinance it, enhance your cashflow and get through a difficult period."
Richmond Capital Partners’ Holohan is also a fan of releasing the value that can be tied up in assets, either through asset refinancing as a short-term measure to improve cashflow, or through straightforward disposal. "Printers are hoarders. It’s amazing how often I walk around factories and see kit sitting in a corner covered in dust. There’s no point keeping equipment on a wing and prayer that it might be needed again at some point in the future – sell it and cash in on the bits of kit you don’t use anymore."
Asset finance is an important area for consideration in more ways than one. France points out that it doesn’t always make sense to pay cash for kit just because you can. "For example a company spends £100,000 on a machine, then two months later an opportunity comes up to buy a business. Cash in the bank is a very powerful tool at the moment. We know customers who like to keep cash aside for opportunities that might arrive out of the blue." In short, cash gives you options. It really is king.
CASE STUDY: ESP COLOUR – FROM CASH CRISIS TO BEACON OF BEST PRACTICE
The millennium was an annus horribilis for Swindon-based ESP Colour. In mid-2000, it was hit by four bad debts totalling £250,000 in a short space of time. Then at the end of the year, one of the firm’s paper suppliers changed its credit insurer and needed to crystallise its debt, and this pushed ESP Colour to the edge of the abyss.
Learning a painful lesson the hard way has resulted in a stronger firm with an acute awareness of the importance of cash, as managing director Paul Bradley explains. "Senior people in the company are educated in cash management. Cash is everyone’s responsibility, not just mine and the financial director’s," he says. "We forecast any suspected bad news immediately and get it into the cashflow straight away – that way you’re already dealing with the worst-case scenario and the position is only going to improve. We are constantly running forecasts and budgets, and I know to the hour what we’ve sold today and by the end of the first trading day of the month I know the previous month’s result. We insure our debts, which makes life difficult for the sales team, but they’ve learned to get the credit checks done first."
ESP has a small ‘at risk’ fund so it can take a calculated risk to trade with uninsurable clients, but this is just £25,000 on sales of £12m. "We have had just three small bad debts in the last seven years and are in good shape."
TOP TIPS: BEAT THE CREDIT CRUNCH
Flexible finances: don’t keep all your eggs in one basket
• Arrange your finances with a number of institutions
• Be aware that relationships with your bank can’t be depended on
• Maximise your finance options and borrowing potential
Focus on your USPs: work hard to get lucky
• Look at what sets you apart from your competition and maximise your strengths
• Source new business opportunities
• Look at diversifying your business
Plan ahead: failing to plan is planning to fail
• Have contingency plans arranged for changing markets
• Be realistic in your planning and build in flexibility
• Plan short-, mid- and long-term
Manage your costs: do something different
• Keep a regular check on all your costs and negotiate better deals
• Look at what costs you can reduce and those you could benefit from increasing
• Don’t overstretch your business – have a healthy balance sheet
Seek professional advice: don’t be afraid to ask for help
• Keep in regular contact with your professional advisers
• Take professional advice to make the most of your business and avoid disasters
• Let your advisers help you prepare for difficult situations
Source: Federation of Small Businesses and ASC Finance for Business
