Feeling too cosy about cash?

Last week one of my clients made a comment which worried me. It was simply “ I’m feeling too cosy about cash”.The background was simple. The company was run by an ambitious entrepreneur who usually ran a tight ship dipping in and out of his overdraft. When Covid started he deferred his Vat amounting to ￡40,000 and took a ￡50,000 bounce back loan.So his bank account varied around ￡90,000 in credit give or take ￡10,000.So he was comfortable. Sales were growing and so was profit but cash remained the same. Where were the profits?When looking at the numbers more closely we could see that his debtors had increased but because he was “cosy” he continued to focus on his sales and failed to chase his customers to pay. He had also been tempted to take bit more for himself because the profits were there to do so.So we went back to basics. Opened some additional savings accounts and started to ring fence some of this cash. First the vat deferred went into a separate VAT account. Then his current vat liability went into that VAT account as well. Then we looked at his potential tax on the profits and decided that this should be put away every month again into a separate account but right now he needed to move ￡10,000 for the tax due in January plus some further tax for the current year. Soon his day to day bank account was looking pretty poor. That was the jolt he needed. A very simple solution of tucking away cash to cover the known costs due in the future but also one that he can maintain every month when he and I review his management accounts and create provisions and pots of money for any eventuality. The important thing is that the money is NOT in his current account. He needs to feel uncomfortable about cash to ensure that he continues to run a successful company long into the future. One final suggestion. If you have taken out a CBILS or Bounce Back loan why not start “repaying” it now by putting that money aside in a separate account so that when the actual repayments start next year you are already used to that cash going out.