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Similar to Cash, by Richard Wadman of Francis Clark LLP with Winter Rule
Cash, by Richard Wadman of Francis Clark LLP with Winter Rule
- 1. Cash Including some forgottentruths… Richard Wadman, Director Francis Clark LLP with Winter Rule
- 2. Cash - presentation •“Cash is the lifeblood of a business” – Cash v Profit – “Mind the gap” – Funding sources – Investment readiness • Q&A
- 3. Cash is thelifeblood of business – Chelsea announce £67.7million loss (By MirrorFootball, 31/01/12)
- 4. But at somestage profit (surplus) is required? “UK Total Government Debt for end FY 2012: £1.046 trillion”
- 5. Cash v Profit •A profitable first £ £ year… Turnover 150,000 Cost of sales 50% (75,000) Gross Profit 75,000 Overheads Wages (20,000) Premises (5,000) Other (10,000) Depreciation (10,000) (45,000) Net profit 30,000
- 6. Cash v Profit •But no cash… £ £ Fixed Assets (Note 1) 40,000 Debtors 30,000 Stock 15,000 Prepayments 5,000 50,000 Bank overdraft (60,000) (10,000) Net Assets 30,000 1. Plant and machinery, fixtures etc
- 7. Cash v Profit •How? £ Profit 30,000 Depreciation 10,000 40,000 Working capital (50,000) (stock, debtors and prepayments) Fixed asset expenditure (50,000) Cash deficit (60,000)
- 8. Cash v profit •Profit and loss shows profit generated in a period. E.g., – Revenue recognised when earned (sale made) – Costs recognised against revenue and/ or time • Cash flow based on cash payments and receipts
- 9. Cash v Profit •‘Accounting concepts’ to give us ‘profit for the period’ – Depreciation – Debtors – Stock – Prepayments
- 10. ‘Mind the gap’ •Understand difference b/w cash and profit • Understand ‘value’ of the balance sheet • Project forward – Cash requirement?
- 11. Mind the gap •Is £60k the worse position? • Timing is everything…
- 12. Mind the gap •The worse £ position? Opening cash 0 – Assume capital Fixed asset expenditure (60,000) expenditure and Stock (initial), say (30,000) stock paid for in advance of sales Wages, say 3 months (5,000) – Say 3 months to Other costs, say 3 months (2,500) get ‘set up’ Rent, prepayment (6,000) – Rent prepayment Cash deficit (103,500) Note: VAT at 20% assumed on expenditure (exc wages)
- 13. Mind the Gap •Identifying ‘cash requirement’ – Monthly profit and loss, cash flow and balance sheet forecasts – Do not forget about profit v cash – Do not forget about tax (VAT and tax on profits)
- 14. Funding • Match fundingrequirement to funds sought – “Clearly, Northern Rock's reliance on wholesale funding, and the 'borrow short, lend long' approach to managing its business risks, were both huge risks.” (http://openlearn.open.ac.uk/mod/oucontent/view.php?id=401804§ion=4.2) • Funding types (general) – Grant – Debt (overdraft to term loans and mortgages) – Equity
- 15. Funding • Debt – Interest and capital – Term or repayable or demand – Secured or unsecured – Asset Finance – Invoice Discounting – Government initiatives to stimulate bank lending • Enterprise Finance Guarantee Scheme, National Loan Guarantee Scheme, “Funding for Lending” (part of £140bn) – Bank lending to UK businesses falling…
- 16. Funding • “It’s anequity proposition” – 2007/08 onwards • Equity – Share in risks and rewards/ Part owners – “Family, Friends and Fools” through to Private Equity – “Government” stimuli • Business Angels – EIS/ SEIS • Venture Capital – Business Growth Fund – Virtual networks – e.g., Crowdcube – Angel networks – SWAIN and GAIN
- 17. Grants • Non-repayable finance • Cornwall has grant funding – see hand-out • Some national schemes “in funds” • Not all businesses eligible
- 18. Investment ready Understand funding Understand options your available and requirements funders requirements
- 19. Investment ready -general • Business Case to the fore – Business Plan and Financial Projections – Team: ability to deliver – Market research – ‘Route to Market’ – Why you are going succeed (acknowledge risks as well?) • Compliance and Legal – VAT, PAYE/NI, Books and records – IPR ownership etc.
- 20. Investment ready –a few specifics • Debt – Ability to repay – Security • Equity – Value – Exit route? • Grant – Eligibility
- 21. Summary • A sustainablebusiness delivers profit – But profit does not equal cash • To survive that business must be adequately funded – Understand financing requirements and look to match with funding • There is a ‘tax tale’ but that is for another day… – plus is carbon the future currency?
- 22.