The oil price has been plummeting – have you noticed? A barrel has lost about 15% of its value in the last few weeks and there’s more to come we feel. The one positive about the plight of Greece and the Euro is that we will shortly all see lower prices at the pumps.
All of which reminds me of my first FD job in the 1990s. I had become Finance Director of an Oil Company, just as Iraq invaded Kuwait. Then as now the price of oil was affected by events not related at all to supply and demand and had started to rise sharply – anticipating a war. I realised very quickly that this would have a major impact on our cash flow and eventually our Bank facility. We were a highly leveraged MBO and cash was tight.
I spent my first few months preparing – then revising – daily cash flows, several at a time allowing for ever higher oil prices. In the event Bush declared war and the oil price dropped like a stone!
So a waste of time? Not at all. Like every well-run company we were well prepared. The benefits were clear
1. We gave ourselves time to devise an action plan to preserve cash.
2. We informed our Bank in good time thereby avoiding last minute shocks for them – and as we know BANKS HATE SURPRISES.
3. We came across as thoroughly professional – something that would have been hugely beneficial if we had got into difficulty.
All of which brings me back to the current day and recession. With sales dropping but bills still to pay. Maybe stock levels at pre-recession levels. Customers taking longer to pay, Suppliers tightening terms and Banks unwilling to increase support. Never has it been more important to predict cash levels by forecasting.
I always begin a new assignment as part-time Finance Director with a forecast. If you feel you too could benefit from a more professional approach to your finances – call me now. Don’t wait until its too late!