A Month in the life of a Fractional / Portfolio Finance Director
4th September 2024, 8:07 am
Working Capital Management – A Complete Game Changer
The good news is that interest rates have recently come down. The bad news is that they are still 5% and going to be at that level for a while.
This means that most businesses are 10% or more for their most expensive source of funds.
Also, whilst the availability of funding has definitely improved this year, and let’s be honest last year was one of the toughest I can remember, getting funding is still challenging, is taking a long time and seems to involve more hurdles than ever.
A few numbers, I am an accountant for I do so love them.
| £m | Base Case | Reduce Stock Days by 15 | Reduce Debtor Days by 15 | Increase Creditor Days by 15 | Revised | |||||
| Sales | 10.0 | 10.0 | ||||||||
| Material Cost | (5.0) | (5.0) | ||||||||
| Labour | (1.0) | (1.0) | ||||||||
| Overheads | (2.0) | (2.0) | ||||||||
| Interest | (1.0) | 0.2 | 0.4 | 0.3 | (0.1) | |||||
| PBT | 1.0 | 0.2 | 0.4 | 0.3 | 1.9 | |||||
As you can see better working capital management can completely transform a business, In this example the business has £10m of borrowing, which it could reduce to £1m, nearly doubling profits.
Now not all of the improvement outlined above will be possible, but if even 50% is achievable imagine the difference.
I have achieved this with a number of clients. The cash it has freed up is allowing them to look at investing in their businesses to fund future growth.
Good working capital management is a complete game changer.
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