Cash Management

Image via WikipediaWithout entering the great debate of the moment regarding the length and depth of the recession and how specifically it will affect the tech start-up world, we at TAG have been providing guidance to our investee companies for the past 3 weeks - via circulars to their in boxes.
Much of the advice has surrounded 'right-sizing' the business and focusing on lengthening runways etc.
Our most recent one is about Cash Management and we've decided to publish it here for the benefit of any and all.
"All businesses have turned their attention to cash management - whether they have piles of it and/or are generating lots of it.....or not.
I thought it would be helpful to set out some simple guidelines for effective cash management.

Cash Management

One of the most important disciplines to instill into the culture of a company is the obsessive management of cash.
This is often neglected in early stage companies because they have no bank debt and are typically funded by piles of investor's equity.
Equity is not cheap and in loss making companies, it diminishes daily.
Preservation and management of cash is essential.

Some tips:
1. Make cash a KPI.
1. Get a daily email. Just 4 numbers - Yesterday's opening balance, add receipts, less payments, closing balance. Comments against any unusual movements in receipts or payments.
2. This will keep your finger on the pulse, trigger actions related to large or unusual payments, build awareness of the dynamics of cash
3. Set monthly cash targets and beat them.

2. Working Capital
1. Accounts Receivable, Customer Receipts.
i. Look at ways you can accelerate these. For example, if you are negotiating an annual license with a corporate or doing any customisation, strive to get payments up front – annually, quarterly etc. Even offer handsome discounts for this [after all other negotiation is complete of course].

ii. You may have noticed if you are a subscriber, that LoveFilm regularly offers a big discount for payment of annual subscription in one lump sum – up to 3 months off. This always proved very successful in locking subscribers in and generating large amounts of cash.

iii. Monies owed to you on account. Collect these firmly and strictly in accordance with the terms of your sale (check your standard T&Cs and ensure that clients have accepted these). Make collections a routine process done by 'someone in finance' not by your relationship person. Ensure there is a rapid and decisive escalation process for slow or late payments

2. Payments. Creditors.

i. Reputation is everything. Always pay on time. BUT on-time means the time you negotiated at the time you had leverage – ie BEFORE you placed the order.

ii. Suppliers want certainty and reliability of payment. To get the contract many will extend credit – stick precisely to the terms agreed and use regular good suppliers as references if needed when negotiating those payment terms.

3. Stock. Inventory. (books are written about this)
i. Don't carry it. If you have to then,
ii. Clear slow-moving fast and decisively. Use slow stock to run aggressive promotions generating revenues and customer engagement.
iii. Have suppliers deliver directly to customers – or little and often.