The price of coal has almost doubled in a few short months.
It’s an obscure fact…
…But as the Finance Director for two heritage railways, it’s the kind of thing I worry about!
You see, before the pandemic we could buy coal for around £150 / tonne. If one of our railways burnt around 2,000 tonnes of coal each year, that meant we spent £300,000 on fuel.
Nowadays, we’re lucky if we can get coal for less than £300 / tonne – we’ve even been quoted £400!
Having to spend £600,000 just to get the trains moving is mind-boggling to me…
But here’s where our heritage railways have an advantage over others.
Through shrewd financial management (!), we’ve built up significant cash reserves.
Since coal prices seem likely to continue to rise, we’re strongly considering negotiating a good price for 2 years’ worth of coal, and securing our supply now.
When you have cash to “play” with, you not only have a safety net in case things go wrong…
…But you also have room to take sensible financial decisions which might not otherwise have been available to you.
It’s important to understand this, because right now lots of companies are having issues with liquidity.
As I explained in my last blog, the economic environment is increasingly unstable, and we’re seeing more cases where companies are not getting paid on time – or at all.
To protect yourself, you must keep a very close eye on your clients’ payment patterns and your own cashflow, and make plans in case there is a negative change.
But ideally, you’ll also have enough reserves to cushion your business in case something goes wrong.
When you don’t have spare money in the bank, you’re fragile. If a big client lets you down, you can fall into crisis very quickly, and it will be much harder to engineer a solution.
Unfortunately we’ve seen this too. In my email last week I told you about a client, who last year won a mega-contract with a very well-respected corporate.
They thought their future was rosy – until this corporate issued a profit warning and started delaying paying its bills, including those owed to our client.
Since they were under-capitalised, they soon found themselves in danger of running out of money.
That’s a serious danger point, because running out of cash is the only thing that can kill a company stone-dead; It’s like the beating heart of your business coming to a sudden stop.
Having back-up funds in the bank would have given them more resilience in time of trouble…
…Exactly like having 6 months’ pay in your savings account gives you security in your private life.
It’s great for your peace-of-mind, too.
That’s why, if you don’t have capital reserves, you should start thinking about building them up now…
…Even if there is no sign of financial trouble on the horizon.
By the time you’re squeezed for cash, it’s much harder to organise the money you need for your business to survive. You might not have enough time, you’re a little desperate, the banks aren’t interested in you and it’s hard to make good decisions under pressure.
Building financial reserves is a long-term project. It’s not the kind of thing you can put in place in a week or a month.
You may have to make changes to your business and its financial management, so that you have money to put away each month. If that’s not possible, there are still solutions – for example, during the pandemic many businesses applied for government grants, “just in case”.
Either way, that’s where we can help.
We work with companies turning over more than £1 million a year, to maximise their profit and help them make the very best financial decisions.
Figuring out how to build financial resilience for your future is part of our mandate.
If that’s the kind of world-class financial management you’re looking for, get in touch with me today.
Simply email or call us on 01279 647 447, and let’s talk about how we might help you.
Warmly,
Garry
PS. I have one more suggestion for how to protect yourself from the cashflow issues so many companies are experiencing right now. I’m going to tell you about that in my next blog – watch out for it!
