In the last ASTL sentiment survey of bridging lender members, 60% expect the turnover of their business to increase over the next six months. I know many broker businesses are also trying to grow and expand while even those happy with the size they are definitely don’t want to contract.
Fundamental to the success of any business is cash flow, but unless you’ve been to business school or you’re large enough to employ a finance director the chances are that you have never been taught exactly how to plan this.
When expanding, it is easy to spend money on new staff or marketing and growing your business, with the anticipation of money coming in, only to be caught out by late payments or the expected upturn not happening as you thought it would. Lenders in particular have a balancing act between the amount of money coming from both redemptions and investors and the amount they can and should lend out at any given time.
The bridging market is fast moving and forever changing, while even the mortgage market has many fluctuations that need to be planned for. What you believe will happen can change hour by hour as there are so many external factors which you may not have control over. The key for lenders is: if you believe you will lend quicker and redeem more slowly, then your cash will always be in a better position than in reality.
So where should you start? Whether you are a lender or broker looking long term is key to running any successful business. So, start with what you believe is going to happen, then capture data on how the business is performing now and how it has performed in the past.
The key is to work backwards looking at where you want to be at the end of the forecast period, to make sure you capture the right information to help drive the business forward. The only way you can look at where the business is going is to look at where it has been.
Using this management information will enable you look for potential holes in your cashflow, then you can mitigate against them, or simply change the path you are on before you get there. Given how much the external environment is changing, no business should operate with the thought of “I did it once and it was fine so let’s just leave it” and expect it to work out again.
You have to keep on top of your projections. Frequent revisions of the cashflow will enable you to track any movements that have happened, change any future expectations and plan accordingly. If your cashflow needs to change it is likely there is something in your business that needs to change too. It is too late to look at it again when you have no cash left and bills or wages to pay.
You don’t have to be the MD or the finance director to think about cash flow though, work as a team across the business, whether the company has three people or three hundred. Whatever your position you can play a part in your business’s growth and in its survival. It is everyone’s responsibility to keep the company cash positive and deals moving.
It is vital to use your knowledge of where the business is going to either change direction or help influence what is being done. Ask questions to change how people look at profitability and challenge the outcome.
This will drive the company and cashflow forward. Remember the famous adage: turnover is vanity, but profit is sanity so help ensure that your company is prepared, even for that slight downturn, late payment or upturn in business.