There is much truth in the old adage “turnover is vanity, profit is pride, but cash is king”. The chances are that if you are a management buy-out, a start-up or just a rapidly expanding successful company, then you will require access to working capital funds, i.e. cash, by way of loans or overdraft facilities with a bank.

Controlling and monitoring your business consumption and generation of cash is the single most important factor when managing your business. If a company has its cash under control, the chances are that all the factors controlling the flow of cash, such as sales, costs, profit, debtors and purchases are also under control. It took me ten years to realise that perhaps the most important piece of information with respect to the business was the “source and application of funds” despite the fact that my non-executive director had been telling me that for the same number of years.

Cash is a strange thing.When a business is growing and making large profits, cash demand increases, and when the business has a down turn, the cash flow can improve, at least for a very short while. Banks are equally strange. When you do not need cash, you will be offered it from all sources, but when you do need it, you can’t have it – a lesson that was learnt by bitter experience.

Just because you have a particular facility now, does not automatically mean you will have the same facility next year, or even next month. Banks lending criteria can change, often depending upon things that are nothing to do with your business.

Track the fluctuation of your overdraft, there should be good positive and negative swings. If the figure is fluctuating around a constant or increasing negative amount, you may be using your overdraft facility as long term working capital, in which case you need to take positive action quickly and talk to your bank about converting part of the overdraft to longer term more secure borrowing.

I believe, with banks, it is all about building confidence and trust and that can only be done by keeping your bank honestly and regularly informed about the progress of your company. Do that and neither of you will have any surprises!

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