Cash flow problems and mismanaged finances are major causes of business failure.

Some of the things that can go wrong in the licensed trade are:

• The assumptions on which your business plan was based prove to be incorrect – typically sales levels prove to be over optimistic; GP levels (particularly on food) are not attained; or wages and other anticipated expenditure levels are exceeded.

• Instead of setting money aside for VAT (preferably in a separate bank account) it is used for day to day expenditure and is not available when the time comes to pay the VAT bill.

• Repairs and the need to replace items (furniture and equipment) are not fully anticipated in the plan.

• The business is used for personal expenditure / there are drawings at a level not justified buy the level of profits generated.

• Failure to obtain VAT invoices from suppliers and therefore not being able to reduce the VAT bill.

• Supplier invoices lost/mislaid and therefore causing profits to be overstated. It is important wherever possible to get supplier statement to make sure no invoices have been missed.

In regards to cash flow in the licensed trade it is also worthwhile taking a look at this link for a fuller picture of the industry and the importance of cash flow.

So what can Melrose do to help?

The Business Plan gives an anticipated cash flow based on a set of assumptions for the business. The plan assumptions include Sales level and split, pricing and GP levels to be attained. It also includes levels of expenditure including staffing, capital expenditure, entertainment and other day to day expenditure and overheads.

If the assumptions are all 100% correct (although they rarely are) then the Business plan will continue to be valid and can be used to guide the business owner/s.

However running a business is not a straight forward matter and assumptions may turn out to be unfounded or need to change due to unforeseen circumstances/events at the time of preparing the Plan.

If you see that any of your assumptions were misplaced or need to change due to changes in circumstances it is important you contact your Client Manager and revise the original plan. A break even should also be prepared so that you know what you need to turn over before you start making a profit; again your Client Manager can help with this.

The earlier we are able to evaluate the changes needed and assess the scope of any problem, the earlier we can seek help from your business. Anticipating a problem before it occurs allows your BDM, your bank and ourselves to act with confidence knowing you are managing your business responsibly.

Melrose Credit Control

Credit control is a critical part of our business and the department tries to ensure that clients keep to the payment terms agreed for the services they have signed for. The majority of our clients pay on time and according to the terms agreed and for that we thank you. Where clients fall behind and there is genuine hardship we will sometimes offer short term payment plans to help.

By keeping on top of our cash flow we are can ensure that we will always be here to provide the services you need.

After all if we cannot manage our finances, what right would we have to advise you?