The FDs' FD: get capital working

So much so, that I fear that many finance directors are in danger of being
‘caught in the headlights’ and not realising that there are very practical steps
available to us all to minimise its impact on our ability to fund our
businesses.

In many businesses, one of the biggest investments is also one of the most
poorly managed ­ working capital. A renewed focus on managing working capital
effectively can provide a business with much needed liquidity.

As FDs we can fall into the trap of setting policies for working capital but
leaving other parts of our organisation ­ sales, operations and procurement ­ to
manage it. In effect, these functions are determining the levels of cash we need
to invest in our businesses on a day to day basis. While many FDs may not
normally have direct influence over a number of these areas, this is the time
FDs need to grab control to ensure we optimise working capital.

In many respects, the FD is the hub of the working capital wheel and,
therefore, at the centre of, and driving, the processes. There are a number of
improvements we can make solely within the finance function, others that need
the involvement of parts of the wider organisation and a third group that
requires change on the part of our customers and suppliers.

As FDs, it is our responsibility to pull all the levers to ensure that cash
is maximised. Firstly, it is imperative that we achieve improvements in the
aspects of working capital under our control. We also need to provide tools to
allow the rest of the organisation to monitor and control cashflow and thereby
make further improvements.

Throughout the business, management needs to be aware of the implications of
its actions and decisions ­ ranging from the launch of new products through to
factoring in working capital into customer and product profitability analyses.
This shift from a pure top line and margin culture to one which includes a cash
consideration will not only bring benefits in the current climate but provides a
solid foundation for the future.

Under normal circumstances, working capital often provides the cheapest and
most accessible source of funding for a business. In today’s environment it is
essential that we take advantage of this source of internal funding before our
customers and suppliers do.

Margaret Ewing is a partner and vice-chairman at
Deloitte and former CFO of BAA