When looking for cash flow tips and debt advice, it is not often that football clubs are used as a positive example. A recent article about Cheltenham Town therefore jumped out at me. Losing out on a bumper crowd for the derby against Kidderminster Harriers, Cheltenham Town advised that it would not plunge them in to a financial crisis. The chairman advised that the postponement due to a waterlogged pitch will do no lasting damage to the club's finances. So how can they be so sure, and can we really all learn how to improve cash flow from a football club?
Cash flow tips relevant to any business
Cheltenham Town put their ability to deal with the impact of a significant loss of income down to prudent accounting (and a trust investment). Whilst most companies won’t have a safety net, left in legacy to them, employing prudent accounting and ensuring that the cash flow reserves are not eaten in to could be the answer to overcoming short term, significant cash flow problems.
Don't forget your cash flow reserves
When a business is doing well the reserves grow and the pot of funds available increases, the obvious next step for most may be to take out that hard earned money and to enjoy the rewards of the success. Most people work hard to earn these rewards, so obviously this is not wrong. However something should be left behind to deal with those rainy day issues. By having cash flow reserves, immediate short term cash flow issues can be dealt with. The funds are dipped in to, and then replaced when things have turned around.
If there are no reserves there, and the bank can’t provide the funding to deal with the issue, it does not have to mean the end. A short term solution such as an emergency business loan could be the answer to bridge the cash flow gap whilst the issues are resolved.
What else can be learned from the Cheltenham Town announcement? Prudent accounting. Whilst no one wants to always be looking at the negatives and the what ifs, but by setting realistic projections, and making an allowance for if things do go wrong, the effect of an issue out of your control could be far less detrimental. Having cash flow reserves set aside, making provisions for tax and an allowance for your suppliers to put up their prices will mean if any of these happen you are prepared.
More corporation tax can mean more profit
A business owner told me recently that he was happy to be paying more corporation tax this year than he had expected. Whilst this may seem like an odd comment as most people want to pay less corporation tax, what he was saying was that he had made more profit. That he had been prepared for cash flow issues and overcame them, and at the end of the year he had made more money than he expected. He therefore was not too concerned that his tax bill was higher, although I’m sure that he is ensuring that the tax is managed as efficiently as it can be!