1. The document discusses strategies for improving working capital and cash flow management during an economic downturn. It highlights that cost efficiency and working capital management are currently weaker than they should be across many sectors and companies. 2. Some warning signs of cash flow issues are high levels of overdue debtors, high inventory levels, and low creditor balances. The document recommends taking an integrated approach to improving cash flow across the entire organization. 3. Specific cash flow improvement initiatives discussed include closely managing customers, scrutinizing all costs, improving processes to eliminate non-value added activities, and maintaining strong relationships with lenders and suppliers.

1. 1
Copyright © June 09 BDO Stoy Hayward LLP. All rights reserved.
Navigating the Downturn
Working Capital & Protecting Cash Flow
Presented by:
Dil Sidhu – National Director
The ‘nice’ decade is definitely over business
change is everywhere
“GM says it will run out of cash by July”
“36,000 UK businesses forecast to fail in 2009"
“Lending to business? The banks are not even
lending to each other!”
“It’s over for Woolies as 25,000 face the sack!”
“Mercedes hope their 8 billion Euro
liquidity cushion is enough!”

2. 2
Cash & Cost efficiency is weakest in 15 years
across all sectors
Why?
Last 5 years – sales led and
little incentive to improve
Investors found trading debt
more interesting
Poor responsiveness to
market conditions changing
BPR, ABC, Lean, TQM
…techniques long forgotten
Our experience suggest
cost bases are 10% -15%
higher than should be
Working capital
management –
performance around 20%
poorer than should be
So?
Improvements oversight =
more difficult to withstand
tougher trading conditions
or tightening covenants
Borrowing costs rising and
bad debts increasing =
companies finding it harder
to refinance
Lenders have provided
‘comfort blanket’ = focus not
on OPI
First Rule of Liquidity:
In business you only run out of cash the once!
“Growth! Just what I like to see Timpson
So what’s this other line going downwards? ”

3. 3
Working capital & Cash Flow warning signs
Debtors
Month-end overdue greater than 10 per cent
High debtors days/days sales outstanding (DSO)
High levels of bad debt
Individual customer profitability unknown
Creditors
Low creditor days/days payables outstanding (DPO)
Poor supplier relationships
High level of rejected invoices
No root-cause elimination of reasons for invoice discrepancies
Inventory
Low stock turn/days inventory outstanding (DIO)
Poor stock visibility and demand forecast
Few partnering relationships
Absence of relevant data
Cost
Revenue
Working
Capital
Lower Receivables Balance
Reduce / Optimise Inventory
Increase Payables Balance
Lower Receivables Balance
Reduce / Optimise Inventory
Increase Payables Balance
Profitability
Invested
Capital
Shareholder
ValueReduce Financial Risk
Decrease Expenditure
Reduce Resources
Reduce Financial Risk
Decrease Expenditure
Reduce Resources
Improving the cash position
Improve Customer
Retention & Service Levels

4. 4
Credit Crunch – How the ‘best’ are managing
Defend your sales line and ‘revised’ forecast – get out and
spend more time with your customers – bring solutions that
hold up their top line
Scrutinise every cost line and every overhead
Don’t cut headcount ‘across the board’ until productivity
improvement is in place enabling more work to be delivered
using fewer people
Use process analysis techniques to map where non-value
added activity is occurring, combine this with activity based
costing techniques
Credit Crunch – How the ‘best’ are managing
Be constructive – don’t ‘slash and burn’ but instead analyse
costs and their deployment within each core process:
demand generation
new product development
order fulfilment
managing the aftermarket
Any expenditures outside this - challenge their existence
Measure achievement – remember you get what you
measure

5. 5
Cash Flow Management – Not limited to the
Finance department
Strategy
People
Technology
CustomersStakeholders
Suppliers
Operations
Sales &
Marketing
Admin
Finance
Disjointed Thinking - Living in silos
Non
value
added
activity
60% 50% 60% 50%
25%
Finance &
support
functions
Sales &
marketing
R&D Production
Field
service
Senior management

6. 6
Customer to Cash – ‘C2C’
Sales
Management
Credit and
Risk
Management
Order
Processing
Invoicing
Collections
Management
Dispute
Management
Cash
Application
Purchase to Pay – ‘P2P’
Planning &
Strategy
Sourcing &
Supplier
Management
Request &
Ordering
Receipting &
Evaluating
Invoice
Processing
Discrepancy
Management
Payment
Demand to Fulfilment – ‘D2F’
Product
Range
Management
Forecasting
& Demand
Planning
Order
Processing &
Customer
Service
Materials
Planning
Scheduling &
Execution
Inventory
Management
Warehousing,
Distribution
and Returns
Working Capital Management
The key focus areas
And what can you do with the cash released…
Pay down debt & improve headroom
Fund growth initiatives
Acquisition and merger activities
Return funds to shareholders
Reduce overdraft levels
Increase dividends/drawings
Stay within financial covenants
Invest in performance improvement initiatives
Hold against financial turbulence
Working Capital Management
Initiatives
Cash
Flow

7. 7
In summary
Improvement potential in all businesses irrespective of sector
Implementation actions do not have to cost buckets of money
Strong sponsorship and workforce motivation essential
Seek improvement across all spheres of business
Confront all spend areas
Cost and cash improvements go hand in hand
Many small improvements projects total a lot of money saved
Do it now the economy may tighten further!
1. Stay close to customers – If you don’t others will!
2. Cash Flow based decisions – “Will it improve cash or not?”
3. Collect what's owed – Review & prioritise terms
4. Forecast cash and challenge all costs – Ask why?
5. Say ‘No’ then negotiate – Bargain hard for every £ or benefit in kind
6. Manage by the numbers – Focus on measures that the lender may look at
7. Manage inventory – No more ‘investment buying’ or ‘Special deals’’
8. Change your billing (BEBO) – ‘Bill Early Bill Often’ and not just at month end!
9. Outsource – If someone else can do it better and/or cheaper look at it closely
10. Take advantage – Ask for early payment and to pay late
11. Lead from the front – Don’t talk about cutting costs and keep the corporate jet
12. Communication is key – Especially between sales & finance
13. Maintain lender relationships and trust - speak to your lender first!
Working Capital & Cash Flow – Top Tips