http://www.businessownersunlimited.co.uk - this is the working capital module

1. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Finance
Working Capital

2. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Agenda
• Business surgery
• Workshop
– Working capital
• Action planning

3. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Course Overview and Positioning
MARKETING SALES OPERATIONS MONEY
SYSTEMISATION AND RESILIENCE
BUSINESS PLANNING
VALUE
BUSINESS DIRECTION
PEOPLE

4. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Learning Objectives
• Workshop objectives
– To understand the concept of working capital and
its importance to your business
– To understand how to manage working capital
effectively

5. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Working Capital Components
• The day-to-day distribution of funding in a
business
• It appears on the balance sheet
– Cash
– Debtors
– Creditors
– Stock
– Work in progress

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Working Capital In Use
Work done
Customer invoiced
Materials purchased
Materials paid for
Invoice paid
Creditors StockRetained
profit
WIP Debtors Cash

7. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Working Capital Ratios
• Debtor days – the amount of money owed to you
by customers – minimise this
– 365 * Debtors/annual turnover
• Creditor days – the amount of money you owe
suppliers – maximise this
– 365 * Creditors/annual turnover
• Stock days – indicates the amount of stock you
hold – minimise this
– 365 * Stock value/annual turnover
• These ratios will vary from industry to industry
and over a business lifecycle

8. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Managing Stock
• Limit the range of items you sell as far as possible within the
constraints of your market proposition
• Set up consignment stock arrangements (you hold the stock but
only pay your supplier when you sell the item)
• Set up just in time or drop-ship arrangements
• Incentivise your salespeople to sell slow-moving or obsolescent
stock
• Balance volume discounts against holding cost and risk of
obsolescence
• Ship older stock first – adopt a strict first-in-first-out approach
• Understand usage patterns
• Stock-take regularly and control wastage/shrinkage

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Managing Work In Progress (WIP)
• Measure it
• Communicate between operations and finance
– Identify where a small amount of work will release a
large amount of WIP
• Invoice quickly
• For long projects, agree scheduled part-payments
so that you do not have to wait until the end of
the job to invoice
• Ask for payments up-front, especially where you
have significant up-front costs

10. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Managing Debtors
• Measure it
• Use standard terms and conditions which are geared to
getting money in quickly
• Control the amount of credit you extend to any customer
• Get work signed-off
• Invoice accurately, with all required information
• Issue statements and reminders early
• Develop good relationships with their accounts payable
people
• Use a factoring, invoice-financing or invoice insurance
service

11. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Managing Creditors
• Measure it
• Always try to have alternative suppliers
• Include the credit terms they are offering in
your negotiations with suppliers
• Try to match or exceed the payment terms
that you offer to your customers
• Pay on the due date and not before
• Use sales order factoring

12. Copyright ©Nick Bettes Consulting www.nickbettes.co.uk
Action Planning
• Suggestions
– Review your balance sheet every month
– Include working capital ratios in your KPIs and set
stretch targets
– Review your terms and conditions and working
capital related processes