Galway Independent 17/02/2010
Business leaders are being advised to take a common sense approach to how they run their businesses. Director of Member Services at the Institute of Certified Public Accountants (CPA), Mr David FitzGerald says there is no big thing that businesses can do to save money, but lots of small things, such as greater use of technology, cost control procedures and questioning whether every single activity done in this business is essential.
"When you look around most organisations, there are things being done where it can be asked 'do we really need to do that or do we really need to do that now?' "The other issue is simply getting your money owed to you in. To do this, it is absolutely vital when entering into an arrangement with somebody or supplying somebody that you agree at the start what the terms of trade are. You must have very clear terms of trade that both parties understand."
Mr FitzGerald says cash is the life-blood of business. Without the ability to meet the day-to-day demands from suppliers for payment, a business could find itself suffering from a lack of input devices, such as trade goods, raw materials, employees and services such as light and heat - devices necessary for the business to function. This problem in itself can lead to cash flow difficulties.
Keeping a tight rein on cash flow, therefore, is always important, but even more so now. When the economy slows and the insolvency risk rises, he says, it becomes absolutely essential to keep an eye on the pennies, so the pounds mind themselves.
However, this readjustment will be of great benefit in the long run to companies and business that manage to see out the recession, he says. "Businesses that survive this recession will be very robust businesses. They will be lean, efficient and effective. Any business that survives this will be very well positioned for the future - the issue is surviving the immediate crisis. That means they have to explore every single aspect of their operation to see where they can free up cash,"he says.
Mr FitzGerald says there are some simple procedures that all businesses should undertake to ensure their survival, in turn creating a far more efficient business model. Management should be consulting with their financial adviser on a regular basis in order to gain a full understanding of the business's cash flow. Assets should be evaluated, liabilities assessed and all income and expenditure items should be closely monitored.
He says businesses should also shop around for better credit, be it banks or suppliers, and have set and agreed timescales for payments. And, even now, companies must invest in technology to achieve efficiencies, he says, while promoting cost control procedures, such as re-evaluating expenses, hotel costs, flight etc.
The cost of most services have come down, therefore company policy should be in line with what has happened in the economy, he stresses. And he recommends a review and scale back of non-essential activities.
A recent survey by the CPA highlighted the real impact that the lack of liquidity, or available money, is having on business in Ireland.
The survey shows that the most basic problem businesses are undergoing at present is a lack of cash. There are many reasons behind this. For one, banks are not lending as readily as before to businesses and this especially affects firms that rely on borrowing as a source of finance.
To highlight the report, the CPA is touring the country hosting a series of seminars offering practical guidance on the various aspects of effective cash management. The topics covered in the seminar include working capital, retention of title, debt enforcement, credit control and corporate rescue.
The Galway seminar was held last night in the Clayton Hotel and those in attendance heard from speakers from leading accountancy companies from across the country, with Damien Hunt from Friel Stafford delivering the keynote address.
See also:
CPA warns business owners to continue to keep a tight rein on cash
Kerry cash seminar offers practical advice