Cashflow is easy except when it’s not – Guest Blog

I know Phil though the content marketing academy and his advice has helped me hughely, so I personally want tot thank Phil and I hope you get a lot from this blog…

I asked Phil to some background info, so here it is “Brief background: I’ve worked in the market research business for (gulp) 40 years, specialising in data analysis, reporting and information delivery. My company develops software for the industry as well as producing analysis, reports both offline and online. We work for a number of large companies utilising our specialist skills. In my spare time, I am a big cricket fan, still see a lot of live rock bands (even at 62) and walk our dogs many miles. I have spent a lot of my life working (and living briefly) in Asia, a part of the world I still enjoy exploring.
How did I get into business? – When I was 27, the company I worked for went bust. I thought about joining another company, but decided to set up my own business and never looked back”



Over to Phil



When you are running a business, it is easy to lose sight of your cashflow. Orders may be good, but that doesn’t necessarily mean that there is plenty of money in the bank to pay your suppliers as quickly as you might want to.

My company, MRDC Software, has two distinct sides to the business. One part sells software and the other services and consultancy. With few suppliers, cashflow to MRDC is mainly about making sure we can pay the salary bill and, of course, Her Majesty’s tax collectors.

Payment up front makes life easier – most of the time

The software side is, in the main, easy. We issue licences and unless people pay us, we don’t send out a software licence. Then, when the licence expires, they renew their licence or it stops working. In that situation, we are never waiting for payment, but cashflow can take a hit if a big licensee doesn’t renew. When this happens, I dash to the Excel spreadsheet that tracks my cashflow forecast. An unexpected loss of revenue can make a difference and, of course, with software licences, you cannot be sure that someone will renew until the last minute as a client can head off to another competitor even when you think you’ve done more than enough to keep the client.

Peaks and troughs

The other problem with software licences is that they do not come up for renewal at even intervals. I have never understood why 40-50% of our software licence renewal income comes in between September and November – it’s probably just a fluke. With a tax year starting in January, this means that we often run at a loss until the last six months of the year. I’ve got used to it, but I don’t like it! From an accounting point of view, you can spread licence income evenly across the 12 months, but I prefer not to work that way as it can hide possible future losses.

Being paid after completing work

Life is not so easy when it comes to services or consultancy. In most cases, we are invoicing after work is completed and have the wait until our client pays the bill. In some cases, we will have suppliers or subcontractors, who may demand immediate payment. This is when cashflow can get tight, particularly if it’s a quiet time of the year or a particularly large project which have a large impact. As a company, we handle a fairly small number of large projects whereas cashflow would be easier if the reverse was true.

Head in the sand technique

My accountant tells me that most of his clients, which are small to medium sized businesses, are more keen to look at accounts and cashflow when things are good. I have to say that I rarely worry about cashflow when it comes to the fruitful time of the year, but I do keep close control during the quieter months.

Create your own optimistic/pessimistic forecast

The Excel spreadsheet that I created gives me a pretty clear picture of where we are with little effort. It gives me an optimistic and a pessimistic forecast, which helps me to decide whether I need to spend more or less time ensuring that enough money is coming in. If the optimistic and pessimistic cashflow forecast figures are far apart, it acts as warning that one or two big invoices could make a big difference. The important thing to me is that it only takes up an hour of my time every month. Yes, I occasionally don’t get round to doing it and sometimes kick myself when cashflow is different to what my head tells me.

Cashflow v Trade

The one reality is that, unless you are accountant, cashflow may not equal good (or bad) trading. It will depend on the nature of your business. If you have high supplier costs, a high level of sales could stretch you further than you might like. This is not true of MRDC Software’s business, where our biggest problems are uneven monthly income from software licences and the fact that we handling relatively large projects in relation to our turnover.

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