The importance of liquidity

I spend my life working closely with businesses helping them to achieve their short, medium and long-term ambitions.

Inevitably, we talk a lot about revenue and profitability, but often more important than either of these is liquidity.

Without strong working capital, it is hard for a business to move forward. There is a lot of truth in a couple of old business sayings: “Cash is King” and “Happiness is a positive cash flow”.

Most businesses which fail do so because of a lack of business liquidity – i.e. expenditure on costs and capital items exceeds receipts from revenue sales and capital disposals.

Merely having just enough cash in the business is no guarantee of survival either. All it requires is the unexpected loss of a loyal customer or a bad debt or an unforeseen business expense and the fragile liquidity balance of a business can tilt dangerously.

A business is no different to a family in that it requires a financial cushion to give it much needed security and peace of mind in unstable times.

We are just emerging from one of the most difficult recessions in history. The businesses that are coming through best are the ones which have managed their cash flow successfully. This meant keeping a tight rein on business expenses, maximising margins through efficiency improvements and maintaining customer bases.

An accountant provides greater value where they do not just dip in and out of your business once or twice a year. It is not about the annual preparation of a detailed set of accounts. Instead, the team at Phillip Bates & Co build relationships with clients – often over the lifetime of a business.

Only by having such close and trusted relationships, can a business owner and his management team get maximum value out of their relationship with a professional adviser.

By determining and monitoring the key performance indicators, in other words looking at the numbers of a business, on an ongoing basis and speaking regularly with the management, we can track and anticipate trends around liquidity and working capital.

For example, we may spot that a business is carrying too much stock, much of which is sitting on a stock-room floor for weeks on end – something that can drain cash from a business.
Another major issue for businesses, one that worsened considerably during the recession years, is customers looking to extend payment terms on suppliers. We can help provide clients with advice and tactics to weather such a storm.

A number of businesses we work with are in the manufacturing sector, where smart tweaks to production processes can often help improve the cash flow of a company.
It is important that businesses do not confuse cash flow and profit. If a company has a rapid growth in credit sales, profit could dramatically exceed cash received, exacerbating a company’s cash situation.

Without cash in the business, the company’s liquidity – i.e. its ability to meet short term obligations – is placed under enormous pressure.

If a business has up to date accounting and is properly tracking its cash flow position, it means it has the ability to tackle potential icebergs sooner rather than later. Poor accounting practices can mean a problem goes undiagnosed for many months, by which time it will certainly be more costly but it may also be too late.

For a free, initial consultation, please call Phil Bates on 0151 353 0003

More than 60% of SMEs optimistic about business prospects

More than 60 per cent of small and medium sized businesses are optimistic about their business prospects, according to a leading North West accountant.

Phillip Bates, Principal with Cheshire-based Phillip Bates & Co, said that although trading conditions remained “tough”, the majority of his clients were starting to see an increase in sales and opportunities.

The firm, which has its offices in Neston, acts for clients across the North West and the rest of the UK, operating in a range of sectors including manufacturing, leisure and hospitality, professional and financial services and retail.

Phillip Bates said: “Small and medium sized businesses have come through one of the UK’s worst recessions, but there are signs starting to emerge of better prospects ahead.

“While the optimism of bigger businesses is based more on the long term outlook, for smaller businesses the signs are often more immediate as customers start to spend again.

“Many of our clients started to see things turning around 12-18 months ago and this increased sense of optimism has continued for at least 60 per cent of clients.

“There does not appear to be any one sector that is doing well, it is more a case of well managed businesses in a number of different sectors starting to see a growth in sales and opportunities.”

Phillip added: “Despite the increased mood of optimism, businesses still face a number of challenges. Many businesses will have used their resources to survive during the last seven years and now require finance in order to move forward.

“However, this finance is still not readily available from traditional lenders like the banks and, even where it is available, there is a reluctance among businesses to take it.

“It is not so much a business’s profitability that determines its ability to expand, more its liquidity or lack of it.

“This is why having up to date financial reporting is so important in helping a business to capitalise on opportunities while also responding swiftly to any icebergs that may lie ahead.”

SMEs should stand up to late payment bullies

There has been a lot in the press lately concerning the issues small and medium-sized businesses (SMEs) are facing with their payment terms being extended by customers.

It is not uncommon to hear cases of businesses being told – usually by larger customers – that they are being moved from 30 to 60 or even 90 day arrangements.

Sometimes, a customer will tell a supplier that they can remain on their current payment terms but will need to give it an attractive incentive to do so, for example a discounting of their invoice in return for prompt payment.

Earlier this year, the car and bicycle retailer Halfords made the news when it was revealed it had contacted its suppliers asking them to pay up to 10 per cent of their annual sales with the company to fund its £100 million store modernisation programme.

The Government has so far steered clear of measures to bring businesses into line, but Business Secretary Vince Cable did suggest that the time may have come for big businesses to publish their payment terms in order to bring about greater transparency.

Whenever clients ask me for advice on how to tackle the issue of businesses trying to extend payment terms, I offer the following guidance:

  • Do you want the business? Having your payment terms extended will present you with a funding cost while you wait for payment;
  • Are you better off concentrating your efforts on the clients who are happy to meet your existing payment terms?
  • Have you talked to your customer to find out why they are looking to extend your payment terms? Are there underlying issues in their business – in which case you may not want business of this kind – or are they simply not valuing the services or products you provide them with?

Value is a really important word in all of this. On more than one occasion, I have urged clients to pick up the phone to a customer who is threatening to extend payment terms and ask them: “Do you value what we do for you?”

Value is an extremely precious commodity in any business relationship and has to work both ways. It is an unhealthy and slippery slope if a supplier accepts the dominance of its customer.

As mentioned earlier, it is often the case that an extension of payment terms masks much deeper issues in a business. If they tell you that they are punishing you because they are being given extended payment terms, then it is important to stress that you are a business, not a bank, and as such cannot afford to shoulder someone else’s debts.

Extending your payment terms may be an attempt to disguise the fact that your customer’s business is poorly managed itself.

The starting point as soon as the issue raises its head is to get on the phone and have a full and frank conversation with your customer to find out why they are presenting you with new terms.

After this, you either need to fight to get your customer to understand that such a move is unacceptable or, if you believe your time is better spent elsewhere, walk away from the business and channel your energy and efforts on the customers who demonstrate that they value the work you do on their behalf.

For an initial free, confidential consultation, please contact Phil Bates on 0151 353 0003.

Accountant plays key role in sale of Wirral manufacturer

A Wirral-based manufacturing company has been acquired by a successful Cheshire entrepreneur.

BMB Weatherproof Canopies, which makes canopies for forklift trucks, has been bought by William Ravenna.

Ravenna made the most “compelling offer” out of more than 20 companies which expressed an interest in purchasing the Wallasey-based firm.

BMB, led by Managing Director Brian Blanchfield, employs 38 people and has a turnover in excess of £2million.

Phillip Bates, Principal at Neston-based accountants Phillip Bates & Co, has acted for BMB for more than 15 years and advised Blanchfield on the sale.

Phil said: “William Ravenna stood out as the ideal acquirer of BMB because of his understanding of the sector and his passion to take forward this successful business.

“We have worked with Brian and his team for 15 years and, more recently, have helped him get the business ready for sale including developing the management team and putting in place the best possible administrative and financial systems.”

Blanchfield said: “Phil’s advice and guidance has been invaluable over the years and he has become a key part of our business, including attending monthly board meetings.

“Running a successful business requires many different skills and I would be the first to admit that the accountancy side of things is not my strongest area. This is why the relationship with Phil has been so important – he is insistent on setting realistic yearly budgets and each month he is able to give us a good indication about our finances and the general state of the market.

“He is also invaluable in terms of helping us understand the financial pressures around stock control, overtime and other key factors in a business. Phil has played a crucial role in ensuring that our business was ready for sale.”

Jonathan Brown and Michael Murphy from law firm Hill Dickinson’s Liverpool office also acted for BMB.

NOTES TO EDITORS

  • For more information, please contact Nick Mason at MPG PR on 0151 239 5052 or 07903 237008 or email: nick@mpgpr.com
  • www.ukbmb.com

New website for Phillip Bates & Co

We are delighted to unveil our new look website which went live today!

The new website is intended to give current and future clients a comprehensive insight into the work of Phillip Bates & Co accountants.

Our business has grown considerably during the past 25 years and now works with clients in Wirral, Cheshire, Liverpool, North Wales, as well as in many other parts of the UK.

During this time, we have been privileged to play a part in helping hundreds of businesses grow and prosper, as well as being there to provide guidance and support during tougher times.

Our experienced team is able to provide our clients with all the services you would expect of an established accountancy practice including accounting and audit, bookkeeping, taxation, budgeting, cash flow and forecasts, payroll and VAT and finance raising.

But we also go a lot further with a number of our clients, working closely with them – often over many years – through our dedicated Business Development Programme, led by our Principal Phil Bates.

Commenting on the new website, Phil said: “We are delighted with our new look website and we hope our clients and future clients find it an excellent introduction not only to our range of services, but also to examples of the work we do for businesses in the region.

“We are always happy to meet with potential clients for an initial consultation to find out more about their needs and to explain how Phillip Bates & Co can work with them to help them achieve their business goals – whatever stage of their business life.”

Phillip Bates scoops prestigious business achievement award

Our Principal Phillip Bates was the winner of the Business Achievement Award at the first ever Neston & District Business Awards.

Phillip-Bates-with-his-Neston-Business-Achievement-AwardNews of Phil’s award was kept a closely guarded secret in the run-up to the first ever awards, which were held in the Cranston Suite at Neston Cricket Club. Phil even believed that he was at the event to present an award to another deserving recipient!

The awards were the brainchild of Neston-based branding and digital marketing agency, Brand, and organised in conjunction with Neston & District Chamber of Trade. Other sponsors were print specialist Evolution, Neston Town Council and AboutMyArea CH64.

Announcing Phil’s award, the Judges said: “This award goes to a member of the Neston & District business community who has made an outstanding contribution over many years. It is someone who has been in business for over 30 years, who has tirelessly supported many community organisations and who has held various roles within the Chamber of Trade itself when it needed his help most. He was the unanimous choice of the judges.”

Other winners on the night included one of Britain’s oldest garden centres, Gordale, which won the Big Business of the Year Award along with the Green Business Award.

Other winners were Neston builder Harry Phipps & Co which was named Small Business of the Year, Elephant Coffee which won the Customer Service Award and Burton family company Dunstan Fish & Game which picked up the Online Business of the Year honour. Entrepreneur of the Year went to Adam Mitchell of Neston building services firm AP Mitchell.

Ellesmere Port and Neston MP Andrew Miller opened the evening, describing the Neston & District business community as the “lifeblood of the economy”.