Cashflow is one of the biggest headaches your clients face as a small business. 52.6% of UK small businesses were cashflow positive in July 2019, according to recent stats from Xero online accounting software. That leaves nearly half of UK small businesses in a negative cashflow position, struggling to find the working capital to continue trading.
This continual process of balancing their cash inflows against their cash outflows is a worry that keeps many business owners, MDs and FDs awake at night.
But why is maintaining a positive cashflow position so difficult? And what can you do, as an accountant and business advisor, to help ease the cashflow headache for your clients?
Profit is vanity, cashflow is sanity
One area where many aspiring small business clients fall down is in understanding the difference between profit and cashflow – and this is a key area where you, as a finance professional, can help to educate your clients in the finance basics.
As any accounting trainee will tell you:
- Profit = the surplus remaining after total costs are deducted from total revenue
- Cashflow = the process of balancing the money flowing in and out of the business
Getting clients to understand these fundamental definitions is the first step in beating the cashflow struggle. Just because a business is making a profit, doesn’t necessarily mean they’re in a good financial position.
For example, a construction business could be reporting good profits at year-end, based on the revenue from building projects. But construction is a sector that suffers from poor cashflow – every project requires money to be spent on site overheads, contractor wages and raw materials, usually before any payment has been received from the client.
So, if you look at their profit and loss statement, the company may appear profitable. But there will be points during each month where cashflow is precarious – and working capital is so low that the company may need to access additional funding or financing.
Positive cashflow allows clients to grow
When cashflow is poor, this can be the difference between a client ‘just getting by’ and growth. So it’s critical that cashflow performance is a key metric in any client conversations.
Cash is the fuel that can take a business from being merely financially stable to achieving real and prolonged growth, especially if the company is aiming to scale up fast. So, aim to make cashflow advice a big feature of client meetings and your wider advisory services.
By offering cashflow advice, you can:
- Help clients re-invest back into their business – using their liquid cash to purchase new equipment, hire and train more staff and set the foundations for growth.
- Highlight future cash issues – by flagging up future cash problems, through cashflow forecasting, you help clients avoid the pitfalls and stay cashflow positive.
- Improve their growth strategy – with the right resources in place, you can help clients operate in a strategic, proactive way, rather than a reactive, defensive way.
A focus on cashflow advisory services helps to drive a ‘virtuous circle’ when it comes to growth. Your advice and support helps clients to grow, and their business then grows alongside your firm, as their need for tailored, value-add advice becomes evermore invaluable.
Cashflow and the impact on company value
Helping clients to improve their cashflow status isn’t just about making day-to-day trading more comfortable and aiding growth – it’s also a key element of company value.
Cashflow is of great interest to potential investors. So, clients need to grasp the importance of positive cashflow in making their company an attractive proposition in the marketplace, whether they’re looking for investment, or even to sell up.
Investors are interested in cashflow numbers because they:
- Demonstrate cash generation – cashflow numbers show how much actual cash a company has generated, which facilitates the opportunity for growth.
- Indicate good financial health – a positive cashflow position indicates that a company has the liquid funds needed to trade, expand and grow as a business.
- Infers a sound investment – a business with good financial health and liquidity is likely to be a sound investment that will benefit shareholders and investors.
As such, an important part of your role as an advisor is to provide clients with the drilled-down financial reporting needed when the business approaches investors. Your accounting expertise is of key value here, particularly for time-poor owners, MDs and FDs who need fast access to detailed and robust numbers.
Enhancing your cashflow advisory conversations
Cash is king for your clients, as we’ve seen. So, cashflow needs to be a central focus of your advisory conversations when working with aspirational business clients.
Helping a small business to become cashflow positive is really just the start of the process, with the impact of a healthy cash position having a clear impact on growth potential, market value and the long term prospects of the company. So, how else can you add cashflow value?
Here are 5 key ways that cashflow conversations add value:
- Removing the worry over debt – paying supplier bills, payroll and other liabilities is what keeps business owners awake at night. By helping clients manage cashflow effectively, you reduce their aged debt, increase liquidity and ease those debt worries.
- Understanding seasonal cash dips – industry sectors will have seasonal troughs where monthly income slumps. Working with clients to understand these timings, and proactively plan for them, allows them to ride through the peaks and troughs without dipping into negative cashflow.
- Provide bespoke forecasting – using custom tools and forecasting solutions allows you to project the client’s cash numbers forward in time. By providing this future insight, the business can plan a strategy that avoids any future cash problems.
- Budgeting for growth – when clients are ready to grow, you can offer budgeting, cashflow scenario-planning and strategic advice that provides the solid foundations needed to expand and develop the client’s company.
- Being a shoulder to lean on – managing a company’s financial future can be a lonely business, so an important part of your job as an advisor is to support your client – both emotionally as well as financially. As a sounding board, coach and advisor, you can make a real difference when it comes to reducing an owner’s stress levels.
Supercharging your cashflow forecasting with Fluidly
The human value you add as a trusted advisor is more important than cold stats. But you do need detailed and flexible forecasting to truly help your clients avoid the common cash issues.
Fluidly helps you achieve this by:
- Saving time on cashflow forecasting – Fluidly’s AI-driven Intelligent Cashflow helps you to produce a cashflow forecast in minutes, freeing up time to advise your clients.
- Identifying what to do next – our dynamic insights mean you can take advantage of personalised financial recommendations and advice on the best next steps to take.
- Monitor all your clients in one place – Fluidly allows you to monitor and track your clients’ cash positions through one centralised solution, so you can easily spot issues and pre-empt any advisory opportunities.
If you want to base your advisory services on scalable Intelligent Cashflow forecasting, Fluidly is the key tool to add to your advisory armoury.