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How to...Cash, Costs & Control

In tough economic times, businesses owners in the fashion world need to make sure they have enough cash reserves and become less reliant on debt but also ensure that it is the owners that are controlling the business and not the other way round.

Bobby Lane explains why the 3 Cs – cash, costs and control are so important.

Cash

With the available sources of working capital now more limited than ever you need to ensure that there is always enough cash/working capital within your business to operate and pay the bills as well as looking at any ways to improve cash-flow further.

This could include:

  • Effective credit control procedures (speeding up the collection of money owed)
  • Using the maximum credit period on offer from suppliers
  • Offering early payment discounts to customers
  • Looking at Government backed initiatives such as the Enterprise Guarantee Scheme  for working capital where security may be an issue

Costs

Don’t forget to negotiate on every line of cost from the direct costs of production to overheads.  This could include:

  • New pay structures for staff to reduce the fixed costs of employment
  • Renegotiating leases
  • Looking at discounts on other overhead costs such as stationery, couriers or travel

Control

You should make sure you have clear, up to date  and accurate financial and management information. This will not only be a requirement for the providers of finance but will allow senior management  to make informed and rational decisions based on fact as opposed to instinct. As an absolute minimum quarterly, ideally monthly, management accounts should be produced to include:

  • A statement of Profit and Loss
  • A balance sheet detailing the Assets and Liabilities
  • A short and longer term cash-flow forecast

In addition make sure you prepare a forward forecast and business plan of at least the coming 12 months, ideally 3 years to plan the working capital requirements along with the strategic development of the business.

Bobby Lane is a partner at Accountants and Business Advisors firm Shelley Stock Hutter LLP.  He advises many fashion and creative businesses on all aspects of their business

blane@sshllp.com

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