Lately I’ve been devoting more time to finance issues in the company. For a long time, I allowed myself not to be fluent in them — and now the time has come for some changes. This article is a result of financial insights I had while ingesting expert materials in the first quarter of 2019.

How much should I have in the bank?

There should be enough cash at the company’s account to keep it afloat for the next 60 to 90 days without any income. Of course, if you are a more conservative person — keep more than that. However, be careful not to drown the company in cash which is being eaten by inflation instead of working for you. 6 months is definitely an exaggeration.

So, what if you don’t have enough cash to meet the above assumption?

As an example, let’s use a business I just came up with:

Tom has a medium-sized cleaning company in Manchester. He earns GBP 4 million in revenue for his services annually. The average customer leaves him GBP 4,000 a month. The business acquires 15 new customers per month, losing five. The profitability of this business is 5%, i.e. GBP 200,000 a year. The margin is 20%, i.e. GBP 800,000. Tom pays out half of the profit in a dividend. He concluded that he wanted to feel safer about the cash in his account to expand beyond Manchester.

In order to survive 90 days without a revenue, he needs GBP 900,000. Unfortunately, he has only GBP 600,000. So where can he get the missing GBP 30,000?

Hit pause on the dividend payments

This is not a solution to the problem, because the lack of cash in the account is rarely due to excessively large dividend payments. However, if you withdraw them — keeping cash in the company will help you to put some money into your account. We already have 1/3 of the missing funds.

Cash: + 100,000 GBP annually

Take a look at the costs

It is almost always possible to reduce something, negotiate with someone, or at least postpone the previously planned expenditure until we improve the cash balance on the account. Tom ran his company very conservatively, so he managed to reduce the cost level by only GBP ,.000 a month as a result of a more favorable contract with coffee, fruit, electricity and OHS training providers.

Cash: + 48,000 GBP annually

Shorten payment deadlines and change the moment of invoice issue

Tom decided to take a radical step here (if he wasn’t such a radical he would probably use factoring). Instead of issuing invoices at the end of the month with a 30-day payment deadline as he did so far, all customers have been converted to paying in advance by issuing an invoice at the beginning of the month with a 7-day payment deadline. As a result, after just 2 months, he has saved GBP 3,000 on time of the person who was vindicating customers. Payment issues have disappeared.

Cash: + 36,000 GBP annually

Extend the cost payment periods, focus your orders and change the moment you invoice your suppliers

A cleaning company uses a large number of detergents, mops, etc. to carry out its tasks. In total, it added up to 9% of the company’s costs. Tom came up with the idea that he would buy everything quarterly instead of once a month, thanks to which it would be easier for him to obtain an extended payment period for detergents and potential discounts.

He received a 1% discount and a 30 day payment period. In addition, by reviewing the costs he incurs for various types of software, he decided to negotiate reductions in exchange for payment in advance for the whole year. Although in the short term this will limit his cash available, it will be a significant improvement in a year. In total, the software cost PLN 30,000 a year and the negotiated discounts reached 17%.

Cash from suppliers: + 3,300 GBP annually

Savings on the software: + 5,100 GBP annually

While changing the payment model, an audit of receivables was also carried out

After analyzing all invoices for the last 2 years, it turned out that the company has 17 unpaid invoices for GBP 84,000. Unfortunately, two-thirds of this amount was uncollectible — that’s the result of long payment periods and carelessness. But he still managed to get the ⅓.

Cash: + 28,000 GBP once

Take a look at assets that aren’t working

Tom tried to figure out where he could get the cash from until he came up with the idea of ​​packing the current employees in one large room instead of two, and leasing the other,  smaller one. Finding a tenant for a part of the office for GBP 1,000 wasn’t a problem at all.

Cash: + 12,000 GBP annually

So far we have already secured GBP 204,000. When the screws on the company’s internal operations were tightened, Tom turned his attention to how his company attracted customers and saw three more levers that he could pull to unlock more cash.

Aim for slightly larger customers

He began to ask his best customers for recommendations and improved the quality of customer service thanks to CSAT and NPS measurements. The improvement was possible because he personally conducted an exit interview with each outgoing client to identify what they could do better, so that the clients would leave his company less frequently. Customers left all the same — but those who stayed were more satisfied, which translated into more recommendations. 

The average transaction value increased by 10%.

Increase the number of leads generated and contact the customers who haven’t bought anything with a new offer after 2 months

In this case, the extension of the Google remarketing campaign display to 180 days, the addition of testimonials to the website and systematic returns to customers who didn’t buy from him immediately, as well as the increased number of recommendations translated into 10 additional customers per month with additional expenses of only 20,000 GBP per year.

Increase prices for new clients 

A 10% increase in prices for new customers means an increase in the margin on them up to 30%. In order not to encourage old customers to leave — don’t decide to raise their price list for now.

Without the changes from points 7, 8 and 9, the company would generate GBP 456,000 of revenue and GBP 91,200 in profit from the new business over the next 12 months, which would translate into GBP 22,800 profitability. After the changes were made, revenues increased to GBP 1,080,000, margin up to 22,800 and profitability up to GBP 139,200.

Cash: + 116,400 GBP


All of the above steps were very exhausting for Tom because he implemented them in half a year and the other half he’s spent waiting for them to fully materialize. The lack of dividends had an impact on his comfort of life. All this work, however, meant that he was able to complete the challenge and generate an additional GBP 396,800 cash during the year to cover more than 90 days of company costs, which will allow him to safely go outside Manchester with his services.

At the moment, his company generated 15% profitability on new business, which, as older, low-margin customers left, systematically improved its overall profitability ratios. The business was rapidly approaching six million, which gave hope for 8 million and 12% profitability in the horizon of 2-3 years. Such a business would generate nearly a million pounds of profit annually, which, assuming an unchanged dividend policy, means five hundred thousand pounds of dividend for our hero. Tom has decided that he needed a tax and investment adviser.

And the expansion? It can wait. Growth in new locations is very expensive, and the Manchester market offered profitability and growth potential at a surprisingly comfortable level — but only for business with properly tightened screws.

Who knows, maybe in some time, when the opportunity arises, he’ll decide to expand to another city by taking over some cleaning company where he could tighten the screws like he did in his own?

not enough cash
not enough cash