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Why is cash flow even an issue?

We’ve all heard the quote “turnover is vanity, profit is sanity, and cash is always king”…

We understand that turnover is the level of sales our business makes, we also understand that some things we sell make more money than others and that it is never a good idea to sell something at less than it costs to provide.

But do we really understand what cash flow is and how to use it to benefit the growth of your business?

In essence, good cash flow is securing the profit you have made on the Companies turnover as soon as possible and paying for the inputs, that were required to make that sale, on time. Inputs could be the simple cost of an item, distribution costs plus administrative overhead. Or they could be more complex, say in a situation where a process is used that has many inputs at every stage in the process.

Paying for the inputs

If you need to pay for the inputs before you receive the actual cash you will need to find a solution to cover the cash costs. Cash is therefore separate from the accounting profit.

If you are producing a product over a number of months (like a house for example) there will be many costs that need to be paid for to end up with a finished house that can be sold. From an accounting perspective these costs will be deducted from the sales price to arrive at a profit when it is sold. But until it is sold cash is going out of the business and is being recorded as ‘work in process’ or ‘stock’ as an asset on the balance sheet. This is just an accounting way of carrying forward costs to allocate them to the sales value in the future accounting period, but this has no resemblance to the cash reality of what is going on.

It probably goes without saying that the best cash flow you can get is to receive the funds up front.

There are many ways to ensure this happens and in businesses that serve the consumer it is the norm.

However, further down the supply chain there are many more businesses that add value to a finished product or service. The norm here is to offer trade credit terms allowing time for a customer to pay for the good or service provided.

The use of credit

The use of credit allows for faster delivery of the good or service as invoicing and payment are not required beforehand. It has sparked many industries – credit control, credit reference agencies, debt collection, trade credit insurance, invoice finance, to name a few.

With the ability of customers to pay late or go out of business before the payment is made to you it is no wonder that this availability of credit is a cause for much consternation. In the UK many businesses are regularly paid late – this is the same for those involved in public and private supply chains.

Late payments

Late payment is more normal than payment on time. This has an inevitable knock-on effect that means Companies paid late cannot pay their supplier commitments and so on down the line. The first step in good cash flow is rarely adhered to.

Even in industries that supply to end consumer businesses (such as supermarkets and cafes) that take payment from their customer on the day the goods are sold, credit is given to them by their suppliers. This credit allows the retailer to stock their shelves with unpaid products in the hope that these get sold before the payment is due to be made to the supplier. If they don’t, this can have a negative impact on cash flow as they will still be required to pay for them.

Trade credit

With trade credit a necessity for the smooth operation of business, it is those businesses that manage their cash flow well that will have excess cash available to take advantage of new opportunities.

In business there are many phases but cash flow can be split into 3:

  1. Scraping by, or just surviving
  2. Extra cash for investing back in
  3. Excess cash to start taking rewards

Personally, I find statements like these quite misleading as they imply that there is a clear point at which one phase starts and the other ends. But imagine, if you will, lots of grey areas and cross over between them and also that you can move up and/or down the scale depending on how good you are at managing your cash.

Level 1 is when you barely have enough cash to cover your costs of operating – there is no spare cash – most often this is attributed to start ups, but I know of many businesses that struggle to move past this phase as they don’t follow the next step before reaching the third – those businesses are forever doomed to either just get by or die!

Level 2 is where you have extra cash in your business over and above operating costs – my goodness you’ve worked hard to get to this point. You are now thinking that having made some headway it is time to take some money out for yourself.

I’ve been here and I know the temptation is hard to resist. But resist it you must. You are not yet the owner of a business – just a better paying job!

If you want to benefit from the freedom that a business that can operate without you can provide, you must use the extra cash generated by the business to invest it back into the business. Improve your capacity, develop systems that encapsulate your vision so that you can employ people to operate and manage them for you – you will make the business more consistent/reliable for your customers which will in turn make it more valuable to you. A potential purchaser can be shown that the business operates without you – you will be amazed what this adds to the multiples you can achieve at sale…

Cash management

Level 3 is the point where, as an owner, you can start to reward yourself for having put in the extra effort at level 2. The business has sufficient cash to operate and take advantage of opportunities and any excess cash can be withdrawn to allow you the freedom to live the life you always wanted.

This is not to say that ‘the business runs itself’ and that you will never again experience cash flow crises – the size of a business is no guarantee of plain sailing and consistent profit – just look at Woolworths, Carrillion, Thomas Cook and Intu… they all ran out of cash even though they were ‘profitable’!!

But, with a focus on generating cash first and NOT accounting profit, I believe these steps can be navigated and the ingrained discipline around cash management that will have developed will be a good basis for continued success.

Playfair Finance wants to help as many businesses as we possibly can. Contact us today so that we can help you set up a plan and work out a solution to keep the cash flowing through your business.

Call us today on 01383 624 425 or submit an enquiry and we will contact you.

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The transformed business finance landscape

I would like to use this time to try to take stock of what has happened over the last three months in terms of the Coronavirus pandemic and the support available for U.K businesses.

Even though it has only really been a few months, it has completely transformed the way some businesses do business.

And it has certainly transformed the financial landscape for all businesses and will probably continue to do so for the next maybe six, twelve, maybe even eighteen months.

Is this the landscape that you feel your business is in?

I think the prediction, really, from many bodies is that we will not actually get back to being where we were at in the next three years.

So it’s going to be difficult trading conditions and some of these problems that we have been encountering, you just could never have envisaged happening in a month of Sundays.

So, if you are experiencing difficulty with your finances, then please do not panic.

Do not bury your head in the sand.

Get some expert advice.

And if you get some expert advice, you have got a chance of being able to plan your way out of the Coronavirus pandemic and trade back to some level of normality rather than getting to the point where maybe you run out of cash and everything falls about around you.

That would be a tragedy for any business, but particularly as a result of, really, something you had no control over.

Contact us so we can put your business back into a thriving landscape.

So, if there is any way that we can help you at all, please DO get in touch.

That is what we are here for.

We want to save as many businesses as we possibly can, because only by businesses surviving will the economy start to thrive again.

Call us today on 01383 624 425 or submit an enquiry and we will contact you.

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How has your business health been?

I was just wondering how your health had been throughout the Coronavirus pandemic.

I notice a lot of people in my local area have taken up jogging, and cycling, and myself included, certainly, have taken up walking to a greater degree with steps going through the roof over the last three months.

So, everybody is in a little bit of a better position with regards to their health and whether that has reflected in their mental health, is another matter.

But the area that really concerns me is the financial health of people’s businesses.

So, if you have a business and you are a little bit worried about how you’re going to trade through this period, the questions really to ask yourself are do you have a plan?

Have you got a plan to get through from where you are now to where you want to be?

Have you got cash reserves?

If you find that the invoices that you do start to raise start to take longer to get paid as a result of the knock-on effect from this pandemic, because everybody really has been affected, are you going to be able to meet the commitments that you have in terms of your bills?

And, do you have a budget and a cash flow?

And do the budget and the cash flow match or is there a shortfall there?

If the answer to any of these questions is no, then I would urge you to get in touch with us on the basis that we can probably come up with a solution for you.

Call us today on 01383 624 425 or submit an enquiry and we will contact you.

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Bridging Finance, not just for property.


Bridging Finance is primarily seen as a property related bit of finance because it can be used to secure against property. That is one of the easiest ways of getting it, just on the basis that property gives the bridging lender a relatively understandable exit – in terms of how they are going to be repaid.

Bridging Finance can be used for business purposes as well. If you have a shortfall of cash but you know that you have got cash coming in in the future. Bridging loans are typically six to twelve months, though they can go up to twenty-four months, so it can be used for different purposes, if there is an exit strategy.

Now, the one thing to bear in mind with Bridging Finance is that whilst it primarily doesn’t need to be serviced, so you don’t need to make payments against it, what happens is that the interest that is building up is that it gets added up and then taken away from the original loan value that you have secured.

What this means is that your day-one draw down is actually less than the value of the loan, to the tune of the fees and the interest, so you really need to bear that in mind when you are arranging your finance.

The original main loan value will be based on the loan-to-value, but the actual amount of money that you will have in your pocket will be different to that, unless you can prove through your income that you are able to service the interest on a monthly basis, which then releases all of that interest from the loan into your day-one draw down. This allows you more money upfront, but you must make a monthly payment. The lender will require proof of how you are going to do that.

There are still lots lenders out there, and more lenders are coming into the market.

Coronavirus has had a little bit of an impact, in terms of some lenders have withdrawn from the market, but there are still plenty out there.

If Bridging Finance is something you are looking for, or considering, then it is still very much on the table. If you need Bridging Finance or want to discuss your options, fill out the contact us form on this website and we will be in touch.

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How far in advance should you plan your commercial finance solution?

Today I’m going to talk about the timescales involved for Tier 1, Tier 2, and Tier 3 commercial lending and commercial mortgages.

In terms of putting a case together, getting it submitted, getting a decision in principle, getting it credit backed (underwritten), and then the time it takes to go through the legal process in order to draw down the funds.

Timescales for commercial lending

The purpose of this is really just to give you an idea, if you’re looking to buy a commercial property, either as an investment, or for owner operation, or even a trading business, then these are the timescales that you are going to be looking at.

I’m going to break it down into tier 1, tier 2, and tier 3. This is slightly different to some other areas where tier 1 is actually going to be a Business Development Manager (BDM) that you’re talking to, so you are actually talking to a person, whereas tier 2 and 3 tend to be more portal based, particularly tier 2 – where it is either meeting criteria, or it isn’t. Tier 3 depends on the lender, but some lenders will be BDM and some will be portal.


So, on to the timescales. For a decision in principle for a tier 1 loan, using a BDM, you will most likely be looking at one to two days. For a tier 2, even though you would apply through a portal, you would still be looking at one to two days. If you were processing a tier 3 loan, you could have a decision in principle back in as little as four hours, though this could go up to two days. So, for all three tiers, it is best to err on the side of caution and plan for the process to take up to two days.

If you then want to get that decision in principle credit backed, because you are happy with the deal that’s offered, then that process can take up to 4-5 days, depending on how quickly an evaluation can happen, and then from evaluation and credit backing, the timescale to actually draw down the funds varies.

For tier 1, you can look at drawdown taking ten to twelve weeks, tier 2 can be eight to twelve weeks and for tier 3, you can expect it to take eight to ten weeks.

If you are thinking of going through this process, ideally, you should attempt to plan anywhere between three and a half to four months ahead of the time that you want the process to be completed. There is, of course, an option if you want to do it quicker.

You can look at Bridging Finance (which will be the topic of next week’s blog), so if you are unable to secure it within the time scale of the three and a half to four months, as long as the ability to refinance was there, you would be able to secure the asset quickly.

A lender for a bridge would want to know what your exit strategy for the finance was, and your exit would be to refinance. As long as you are able to show that you are able to refinance, then the bridge should be forthcoming.

If you want to discuss these or other business finance options, get in touch by filling out the contact form on this website and we can work out what solutions will fit your needs.

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The land owner, developer and financier relationship

Hi, it’s Graeme from Playfair Finance here.

Are you a land owner, a developer, or have some money put aside that you want to do something with but are uncertain of what to do with it? If you fit into any of those categories, then read on.


In the course of my work, I come across projects where people have got a bit of land and they’re looking for a developer. Or, I come across developers who are looking for a bit of land, so I can be a bit of a ‘dating agency’.

One of the things I certainly would like to do is talk to people who may be private individuals, or have got funds that they wish to invest in this type of arrangement.

Obviously, I can put you in touch with people and make your money turn into more money.

There are a lot of people getting into that market which kind of makes a bit of a mockery, sometimes, of the broker who says ‘I’m whole of market’. We really can only say that you are ‘representative of market’ because there are so many new lenders coming into the market nowadays, it’s hard to keep track of them all.

But it gives you plenty of opportunity for developers to increase the housing stock, which is effectively what I’m here for. So if that sounds of interest, then please get in touch by filling out the contact form on this website.

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Understanding Commercial Property Mortgages

I’m currently working on a commercial mortgage for a client. I thought it appropriate to go through some points that were raised in our recent discussion about commercial mortgages.

So, most commercial mortgages are going through Tier 1. This is High Street lenders effectively. You can get fifteen-year terms if you’re doing it as an investment, and 20 years if you’re actually owner-occupier, but High Street banks tend to be capital and repayment.

The loan to values can be eighty percent for owner occupier, or 100 percent if you are looking to buy a portfolio which is tenanted. So if it can be shown that it’s genuinely under market value then effectively you may be able to do it without putting any money in. In saying this, a lot of lenders prefer to see some ‘skin in the game’.

Tier 2 tends to become a little bit more attractive. This is on the basis of a lower cost to repay because they will offer either a capital repayment, part and part, or interest-only facility. So, whilst they will potentially be slightly higher in terms of their interest rate, it may suit the strategy that you are operating. Because of that, tier 2 might be worth looking at.

Tier 3. There are less that get there, let us put it that way. But it can be used if potentially you have some adverse credit. So, if you have adverse credit, not within the last 12 months, but 12 months or older that can be explained away then tier 3 may well look to support you on that.

Now, commercial mortgage is obviously for property, but you can also use it for buying a trading business. So, there are two valuations that you get when you are buying a trading business that operates from a property, and one of them is called a market value and the other is market value one, so MV1.

MV1 tends to include an element of goodwill, fixtures and fittings, and things like that, so you can borrow slightly more if you are going to buy a business that is operating. Do bear in mind that if you are going to be an owner operator your maximum term is going to be 20 years. Also, if you are going to the High Street, it’s capital and repayment that you’ll be looking at.

If you are look to buy a commercial property, or even a trading business and you think we can help, please get in touch and we’ll be happy to have a conversation.