Beyond Cost-Cutting and Credit Control: Strategies for Managing Cashflow 

Last week, historic North East company Ringtons announced a fall in profit margins of around 13% for the year as they try to protect customers from the inflationary pressures they, like everyone else, are facing. 

Black Sheep Brewery, also well known in the region, recently announced that difficult trading conditions have restricted financing options making a strategic rethink necessary, even though trade is picking up after the pandemic. 

As the UK navigates a post-Brexit, post-COVID economy and deals with the consequences of the ongoing Russia-Ukraine war, businesses are facing increasing pressure on their finances. Rising energy prices, higher costs of materials and haulage, and increasing wage bills are all contributing factors, making it harder for businesses to maintain profitability and cash flow.

The underlying causes of the cash flow issues are clear: external factors, largely beyond businesses’ control, are impacting the cost of inputs and customer demand. As such, identifying the root causes and solutions is not likely to be an issue. The operational systems and processes needed to address these issues (e.g. cost-reduction, credit control, increasing prices) are equally obvious and relatively straightforward to modify accordingly.

But as obvious as the causes and solutions may be, there is still no guarantee that implementing changes will improve cash flow. There is a third factor at play that can cause cash flow improvement initiatives to be ineffective; employees. 

Employees may not be engaged or may lack the necessary skills and motivation to implement the measures effectively. This can be a significant obstacle to success, especially if businesses fail to engage and involve their whole workforce in the change process.

Employee disengagement is at an all-time high in the UK as a whole, with many workers feeling overwhelmed, stressed, and disconnected from their jobs. 

This can make it challenging to implement new initiatives, even when they are necessary for the survival of the business. Employees may resist change or lack the motivation to put in the extra effort required to improve cash flow.

However, lack of buy-in is not just down to employee disengagement. Other factors can also play a role, such as communication, training, and setting realistic expectations. 

If employees don’t understand why changes are necessary or don’t have the necessary skills and resources to implement them, they are unlikely to be effective.

To address these issues, businesses need to take a more comprehensive approach to improve cash flow. They need to engage their employees and involve them in the change process, providing them with the necessary knowledge, skills, and resources to implement the measures effectively. 

Communication is key, and businesses should explain why changes are necessary and how they will benefit the company and its employees. When employees cannot see how the success of a business translates into their own success, motivation can quickly fade.

It is important to recognise that this doesn’t apply only to those people directly involved in cashflow management and cashflow improvement initiatives. By energising the whole workforce in resolving the issue, wide-ranging solutions can be identified and implemented that may not have otherwise been considered. 

Furthermore, engaging the whole workforce can avoid people working at loggerheads with conflicting priorities. Collaboration between individuals, teams, and departments can create solutions that otherwise would have been impossible to execute.

In conclusion, the current economic climate in the UK is making it harder for businesses to maintain strong positive cash flow. While Ringtons and Black Sheep are well-positioned to weather the storms, a lack of employee buy-in may hinder efforts to improve cash flow for other firms.

By engaging employees and providing them with the necessary knowledge, skills, and resources, businesses can increase the likelihood of success and weather the post-Brexit, post-COVID, and conflict-caused storms.