AccountsBlog

How to spot cashflow problems before they happen
Saturday, September 3, 2011 - 11:55

If you can identify potential cashflow problems before they happen, this can help your business prevent financial crises. It is important that you keep an eye on your forecasts and figures and are aware of market conditions and other signs of possible trouble.

Many people draw up forecasts and plans but then fail to study them properly and look out for any danger signs, or compare the forecast with actual figures as they become available, of course, the earlier you identify potential problems, the sooner you can take action to avoid them.

A budget or business plan can soon become out of date. However, they should not be neglected - it's a good idea to keep your eye on the figures at all times. It will help your business if you:

  • record actual figures
  • compare the actual figures with the budget or plan
  • record variances
  • investigate reasons for variances
  • review whether the budget or plan should be updated
  • Look at any inconsistencies and assess their significance.

In terms of the future there are at least five possibilities when considering irregularities:

  • it could be a one-off that will not happen again
  • it could be due to seasonal variations such as Christmas
  • it could be a continuing trend
  • it could be self-correcting - a surge in demand followed by a slump, with the end result being the same in the long run.
  • it might not be self-correcting, but you are taking steps to correct it

Don't just consider discrepancies. You should also consider completely new factors such as an unexpectedly large order or the arrival of a new competitor, if changes are needed, you might choose to:

  • Keep the original budget - but to measure and understand any variances in the actual figures against the original budget and new forecasts.
    -Use rolling budget forecasts - as each month's actual information is finalised, update the budget to provide another month's data. This means that you will always have a 12-month projection.
  • Whatever your system, keep your eye on the forecasts and keep them up to date.

Be aware of changing market conditions.
You need to be sensitive to changes outside the business.

Watch out for developments that affect your business, respond quickly and change your plans if necessary.

The following are some of the things to be aware of:

  • interest and exchange rates - they have an influence on the general trading climate and are not just a matter of direct costs.
  • what your competitors are doing - how they will respond to what you do.
  • the entry of a new competitor into the market place.
  • new technologies and innovations that could change the market and the demand for your product or service

All businesses will experience change to their general sales environment at some point. These changes may affect the economy as a whole, or they may not. For example, in the recent economic downturn the housing and manufacturing sectors were badly affected, but pharmaceuticals and high technology engineering experienced less of a contraction in demand. It is important to be alert to possible changes and to amend forecasts and plans to compensate for them in order to avoid potential cashflow problems.

Your relationship with banks and other lenders.
You will benefit if you maintain good relationships with your bank and other lenders. Listen to any worries they have about your business and demonstrate how you can allay these fears.

Signs of customers in trouble.
Even without hard evidence, there are several signs that can suggest it's time to check a customer's financial situation.

These signs are often hard to pin down, but they should not be ignored.

Trust your instincts and act on your concerns. If one or more of the following sounds familiar, alarm bells should be ringing.

Mistakes on cheques.
It might be an accident and it often is, but it might have been done deliberately to buy time. It is more worrying if it frequently happens that:

  • the customer forgets to sign
  • words and figures differ
  • cheque is post-dated

Numerous queries.
These can include requests for copy invoices, too many, too late may indicate payment problems.

Cheque in the post.
This is perhaps the most common excuse of all and a tried and tested delaying tactic. Try to pin them down on precisely when a cheque was put in the post.

Rumour.
It pays to keep your ear to the ground. It is worth talking to your competitors and people in the same business.

Something in the voice.
This often alerts people to a problem. The speaker may be lying or trying to cloud the issue and their voice gives them away. Do they appear defensive, aggressive or evasive when you speak to them about money?

Use information from staff.
Your sales force is your business' eyes and ears in the marketplace. Without indulging in gossip, encourage your team to share trade talk on customers and suppliers with you. If they visit a customer's premises, they may be able to spot indicators of difficulty such as high levels of unsold stock or smaller or less frequent orders than usual. An unexpected or sudden request for an extension to their credit limit may also indicate a cashflow problem.

Other.
Most people hate lying and making excuses. The following signs may reveal they are feeling the pressure:

  • they refuse to speak to you
  • they never ring back
  • they are always in a meeting
  • they refer the problem to someone else
Employee Holiday Pay
Saturday, September 3, 2011 - 11:27

Know how much holiday to give your staff.

From 2009 the legal holiday entitlement for full time employees is 5.6 weeks (28 days).

Calculating holiday entitlement for workers who don't have regular working arrangements or patterns.

Part-time workers.
Paid holiday entitlement is calculated pro-rata for part-time workers.

So if a member of staff works three days a week, they are entitled to 16.8 days (5.6 x 3).

Shift workers.
It is sometimes easier to calculate holiday entitlement as shifts.

So if a member of staff works four 12-hour shifts followed by four days off, the average working week is 3.5 12-hour shifts. So 5.6 weeks' holiday is 5.6 x 3.5 = 19.6 12-hour shifts.

For other shift patterns, it may be easiest to calculate according to the established repeating pattern.

More irregular working patterns: calculating holiday in hours.
If a member of staff works annualised hours, you need to calculate how many hours a week they work on average over the whole year.

So if a member of staff works a total of 1,600 hours a year, or 34.48 hours a week over 46.4 weeks of the year, the holiday entitlement is 5.6 weeks x 34.48 hours a week = 193.09 hours' holiday for the year.

The statutory holiday entitlement is excluded from the average working week calculations.

For someone working compressed hours, for example, a 36-hour week over four days instead of five, their annual holiday entitlement is 36 hours x 5.6 weeks = 201.6 hours holiday for the year.

Rather than taking a day's holiday, they would take the number of hours that they would have otherwise worked on that day (ie for 36 hours worked over four days, they would take nine hours' holiday for each day otherwise worked).

Casual workers.
If a member of staff works on a casual basis or very irregular hours, it is often easiest to calculate holiday entitlement that accrues as hours are worked.

The holiday entitlement of 5.6 weeks is equivalent to 12.07 per cent of hours worked over a year.

The 12.07 per cent figure is 5.6 weeks' holiday, divided by 46.4 weeks (being 52 weeks - 5.6 weeks). The 5.6 weeks are excluded from the calculation as the worker would not be at work during those 5.6 weeks.

So if someone works 10 hours, they are entitled to 72.6 minutes paid holiday (12.07 รท 100 x 10= 1.21 hours = 72.63 minutes).

Part days.
Calculations may result in part days, eg 22.4 days for someone working four days a week.

If this is the case, you could:

Allow the worker to leave early or arrive late one day, eg for someone working an eight-hour day taking 0.4 of a day's holiday, you could allow them to leave after working for four hours and 48 minutes (480 minutes x 0.6 of a working day = 228 minutes) or allow them to arrive three hours and 12 minutes late (0.4 of a working day).
Round the entitlement up to the nearest full day - or half day if this is still easy for you to administer. You cannot round entitlements down.
Allow the worker to carry the part day over into the next leave year (and then perhaps round up to the nearest full day).
Pay them for a part day. However, you can only do this if the worker's paid holiday entitlement is more than 5.6 weeks as you cannot pay a worker in lieu of untaken statutory holiday.

VAT Rates
Monday, June 13, 2011 - 11:10

From January 2011 the standard VAT rate will increase to 20%

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