PricewaterhouseCoopers in 'cash rich' plea
Mar 25 2009 by Tom Scotney, Birmingham Post
Managers need to start focusing on making their firms cash rich, rather than just looking at profit, experts at PricewaterhouseCoopers in the Midlands have said.
Historically, most businesses have been run for profit, but in today’s economic climate, profitability is no longer the most critical factor in determining whether a business fails or survives.
And according to experts at the Birmingham office of PwC, Midlands businesses should adopt a cash culture, such as that more typically seen in private equity companies.
Chris Kent, director at PwC in the Midlands, said: “Private equity companies are traditionally run for cash rather than profit and their experience is very relevant to Midlands businesses in today’s recessionary world. The ability to draw down cash is now essential for businesses looking to refinance debts and enhanced liquidity can also open up opportunities for them to make investments.”
Adopting a cash culture similar to that embedded in private equity companies involves doing regular cash forecasts and cash reviews, to ensure businesses know where cash lies in their business on a week-by-week basis. This information can then be used to spot untapped cash resources in areas like overdue debt, contractual arrangements or inefficient processes or controls. Combined with specialist tax or pensions advice, this cash driven approach to business management can generate immediate and substantial savings.
Chris Kent, another Midlands PwC director, said: “Private equity companies are used to operating with a high level of debt and are particularly effective at generating cash quickly to repay debts – profitability is less of an issue.”
Adopting a cash culture helps businesses to react more quickly to cash winning opportunities by taking action to claim back VAT overpayments and reviewing payments to uncover other potential refunds. Similarly, improving people management by giving managers a better understanding of where talent lies in the business can facilitate decision making.
