Are North East Businesses Prepared For The Year Ahead? - Especially In Uncertain Times

Issue 25

After more than 15 years working at Lloyds Bank, Simon Quin, has just been appointed as the Area Director for SME Global Transaction Banking in the North East.

After previously working as head of International Trade for the Bank, Simon will now return to his roots in the North East, to lead a team of 10 regional managers specialising in asset-based lending facilities for businesses with a turnover of between £1m and £25m.

He plans to use his expertise to help businesses in the North East to prosper. Here he discusses how North East businesses can manage their cashflow more effectively, particularly in uncertain times.

After the events of the past 12 months in particular, businesses in the North are quickly becoming used to dealing with political and economic uncertainty. But are they doing so at the expense of greater pressure on their working capital?

Working capital is vital to businesses as it’s the amount of money a company needs in order to cover its day-to-day running costs.

According to the first Lloyds Bank Working Capital Index (WCI), which launched last month, pressure on working capital is at a 13-year high, with businesses in the North having £59.6bn tied up in everyday operating activities.

The more money that is tied up, the less is available for investment or reducing debt, so it’s important that businesses prioritise keeping these funds as accessible as possible.

How can companies improve their working capital effectively?

Firstly, implementation of any changes needs to be seen as a priority throughout the business. There needs to be a clear vision and appropriate senior sponsorship to manage any challenges that may happen across business units.

The action plan should be clear and should be included in business targets and objectives so that it can be adopted across all parts of a company. If an organisation is not fully motivated and aligned to the goal of working capital improvement, any programme will meet resistance.

While different parts of a business have conflicting priorities – whether it’s the accounts team chasing invoices, or the relationship team looking after suppliers and clients – it’s important that the working capital strategy is executed by all.

By having a good management structure that oversees all departments, the strategy for effective working capital can be achieved.

For these management teams, it’s vital that correct measurement procedures are put in place to analyse the payment and collection processes, and inventory management information should be at the right level of detail to focus attention on areas of improvement.

Bolster your working capital plan with new technology and skills

A technology-only solution is not the answer but it can be an enabler to increase real-time focus. Equipping staff with the right skills and knowledge in working capital will go a long way in increasing focus and ensuring changes are sustained.

Whether it’s the owner-manager, managing director or financial director, those responsible for a business’ finances should look at improving working capital.

While this needs a cross-functional approach, those involved in finance play an important role in developing a case for change. As part of this, businesses should be aware of the full range of levers available to them, both process improvement and financial solution, to improve working capital.

Why focus on working capital?

Tidying up your finances may seem like a laborious task, but it can greatly benefit the growth of a business if done efficiently and sustainably.

The successful management of working capital releases cash back in to the company, and enables the business to accelerate its strategic objectives whether that is new product or market development, paying down debt or meeting shareholder expectations.

To simplify this, Lloyds Bank has created a working capital management tool that allows our colleagues to analyse the cycles of their clients, benchmark them against their peers and identify financial opportunities and challenges.

Speaking to a working capital expert can improve a company’s cashflow, reduce any potential risks posed by market uncertainty and, ultimately, help towards achieving a prosperous Britain.

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