Bill Vince
BDO
Ask the Expert: Working capital management
Bill Vince from BDO offers guidance on how to keep a business profitable in troubled economic times.
Q: Are there any measures that can improve my business’s chances of survival and success, given that so much seems to be out of my control?
While there may be many things in the South West, the UK, eurozone and the world that we could currently feel a degree of helplessness about, businesses should not lose sight of the factors they can still assume control of.
How a business manages its working capital can significantly impact its profitability and cash flow. And yet, still missing in many businesses, are working capital performance improvement targets – particularly below very senior management.
Businesses should also re-examine where and how they source materials, products and other significant costs. While some businesses fear disrupting long-established relationships or assume existing arrangements to be “fixed” or “standard”, others have taken advantage of a hugely competitive environment. The mere process of considering change could secure a better deal.
Businesses look to their suppliers for more favourable terms just as their customers similarly look to them. It is essential to maintain momentum in the credit control process – formulating pragmatic strategies and taking appropriate action to ensure adherence when necessary.
Forecasting the type and levels of demand and coordinating supply lead-times and restrictions can be extremely challenging and exasperated by untypical events, such as the Olympics, the Royal Jubilee and snow! Over-stocking and slow moving stock lines (particularly seasonal ones) can tie up significant working capital, impairing ability to re-stock so innovative strategies may be required to realise value.
Any strategy to drive turnover by discounting prices (currently prevalent in retail) must be measured against both the real impact on gross margin and profitability, and a raft of other issues including the risk of lower price precedents, the realignment of perceived market position and the erosion of brand.
There are always steps that can be taken to improve a business’s position. The key is to continuously challenge the way you do things.
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About Bill
Contact Details
Bill Vince
Business Restructuring Director,
BDO
bill.vince@bdo.co.uk
0117 930 1525
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