Page 5: Benefits of effective management accounting
The Confederation of British Industry (CBI) is the group that represents the interests of many British businesses. It sees cash flow as crucial to the survival of businesses. Richard Lambert, CBI Director-General, says: 'We need to keep business working to safeguard jobs and we need to act now. The biggest threat hanging over businesses is cash flow. If they cannot get their hands on the cash and credit they need to go about their day-to-day business, there is a real risk we could see healthy firms going under.'
In a recent CIMA survey, medium-sized organisations in the UK cited cash flow as a key area of concern:
- 50% of the mid-sized businesses said that it is more challenging now than 12 months ago to access capital
- 66% stated that it is more difficult to receive payments from customers.
According to the late George Moore, founder member of the Society of Turnaround Professionals, the cash forecast is especially vital in a recession:
'A realistic and well-researched cash flow forecast 13 weeks out will pick up sudden increases in sales and costs. It”s pretty straightforward to work in the payments side the salaries, taxes, leases and supplier invoices. All you have to do then is estimate the collections you”re sure about and you”ll see straight away what you”ve got to do in terms of sales and improved collections.'
Lack of cash means inability to pay creditors and if this does not lead directly to business failure, it still makes trading more difficult. It may harm the reputation of the business, may make it harder for it to obtain credit (for example, from suppliers) or make it difficult to pay wages and therefore keep experienced staff.