By James Nicholson-Smith, Business Development Director & Managing Principal, West Midlands Region, The FD Centre
Fast growth companies generally have an insatiable need for cash and this need often outstrips the amounts that suppliers, banks and invoice funders are prepared to lend it. The reason for this is that the credit rating of a company is traditionally based on the statutory accounting information and then downgraded for more recent information if applicable. As a result a great deal of effort goes into building the credibility of the company with these key stakeholders.
The modern Finance Director has a much wider human role in managing expectations of suppliers and also maximising the funding available from banks, invoice discounters and other sources. This allows a significantly more time to the entrepreneur to focus on profitable growth and building the company's value.
James Nicholson-Smith, part-time FD at Extreme Green Int Ltd a fast growing chemicals company comments; "The main directors are so focused on sales orders and margins being achieved that they fail to see that the availability of cash is like the oil in the machinery".
Fortunately, two of the directors have raced motor-cars and go carts to a very high level. Using the analogy of racing a highly tuned company with determined directors in the cockpit but no oil in the engine, allowed me to educate them on the importance of staying one step ahead of the cash-flow requirement and always having back up plans in the event that forecasts were missed or more serious mistakes were made. The time spent managing payments to suppliers becomes all consuming when there is no light at the end of the tunnel in terms of sufficient working capital funding".
In the meantime, the FD Centre can help your business achieve your strategic objectives for 2011 and beyond. Register for a free Business Strategic Review to discover how and receive valuable advice for your business's financial planning today. Or for more information, visit www.thefdcentre.co.uk.
Join us on