Master cash flow management with insolvency expert Darren Vardy. Learn essential forecasting techniques, creditor relationship strategies, early intervention methods, and practical systems for maintaining healthy business cash flow.

Key Topics Covered:

- Importance of cash flow vs. profitability

- Cash flow forecasting and monitoring systems

- Managing creditor relationships effectively

- Working capital optimization strategies

- Early warning systems and intervention triggers

- When to seek professional cash flow assistance

Key Takeaways:

✓ Cash flow problems are the leading cause of business failure

✓ Regular forecasting helps identify problems before they become critical

✓ Strong creditor relationships provide flexibility during difficult periods

✓ Working capital management directly impacts cash flow health

✓ Professional help should be sought at the first sign of sustained problems

Who Should Listen: Business owners, company directors, lawyers, accountants, and anyone wanting to understand financial distress warning signs.

About the Host:

Darren Vardy - Managing Director of Insolvency Options and Registered Liquidator with over 30 years of experience in business recovery and debt solutions. Darren has helped thousands of businesses and individuals navigate financial distress and find practical solutions to complex problems.

Connect With Us:

• Website: insolvencyoptions.com.au  • Phone: 1800 463 328 • LinkedIn: https://www.linkedin.com/in/darrenvardy/

Subscribe & Follow:

Don't miss future episodes! Subscribe to i.O. - Insolvency Options

Like this episode? Please leave a review and share with colleagues who might benefit from these insights.

Co-host: Anthony Perl

Produced by: Podcasts Done For You

Anthony Perl: 00:00:03

Cashflow Management, the lifeblood of your business.

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Welcome to IO Insolvency Options

with Darren Vadi, the managing

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Director of Insolvency Options

and a registered liquidator.

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With over 30 years of experience

helping businesses and individuals

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navigate financial challenges.

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In today's episode, Darren

Explores why Cash flow management?

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Is absolutely critical for business

survival and reveals the warning

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signs that indicate trouble ahead.

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We'll discuss practical strategies

for improving your cash flow, managing

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creditor relationships, and implementing

systems that prevent financial crises.

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Your master essential cash flow

forecasting techniques, understand

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working capital optimization and

learn when to seek professional help

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before problems become critical.

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I'm your co-host Anthony Pearl.

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Let's dive into unlocking

more about insolvency options.

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Darren, let's talk a little bit about

cash flow and the importance of it

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and how critical it is to a business.

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People talk about this term all the

time, but do they really understand it?

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And a lot of circles that

I've moved, cashflow equals

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what's in the bank account.

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And that's not necessarily

the same thing, is it?

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Darren Vardy: No, it's not.

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And unfortunately, a lot of small

businesses, the owners do treat the

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business bank account like their

personal bank account, which is a

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big no-no for want of a better term.

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You know, the importance of cash flow.

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Again, comes back around

to avoiding insolvency.

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When we test for insolvency,

it's a cashflow test.

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Is there sufficient funds flowing in to

enable to pay the creditors on the out?

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And cashflow is not profit neither.

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You know, a lot of people will look at

profit and say, well, I'm profitable.

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Why am I profitable?

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But.

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I don't seem to have enough

cash to pay people, you know,

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week on week, month on month.

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And the reason for that could be

that their cash could be locked up

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in balance sheet items such as stock

or debtors, and to produce cash flow

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from your income, from your sales.

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It's a matter of realizing the

trade debtors within terms.

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Minimizing the stock held throughout

a period of time because stock sitting

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in a warehouse is, for want of a better

term, wasted cash flow because it's

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stock that you have to pay your creditors

for, which is just sitting there and

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you've not yet converted it to income.

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Likewise, with your debtors, if your

debtors are paying you outside of

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terms, you may have a 30 day terms.

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If your debtors are paying you

at 60 days, that has a knock on

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effect as to the availability

of cash to pay your creditors.

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And quite often what you find is if

your debtors are paying you at say,

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30 to 60 days and you have to pay your

creditors at 14 to 30 days, you will need

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some cash flow or some working capital

to enable those creditors to be paid.

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Anthony Perl: And there's nothing

worse than having to wait.

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You know, you want people

to pay you straight away.

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And the truth is that doesn't happen.

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And often the bigger the business that

you are dealing with, the longer the

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time to actually receive those payments.

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And the delay.

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And the delay, and it just

has a steamroll effect.

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Darren Vardy: Yeah, and

really it's a matter of being.

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On top of your customers.

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You know, when we talk about debtors, it's

about the relationship with your clients.

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And there are some industries

where, particularly the construction

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industry, the nature in which claims

are made and then paid, you know

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that you are at the 60 day mark.

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So then you need to forecast and budget.

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How do I build the working capital?

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What working capital do

I need to be able to.

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Keep my creditors happy and pay them maybe

a little bit earlier than that before I

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actually get paid because your creditors

are the people that will be continuing

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to build the project month in month out.

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So working capital and your working

capital requirement and having

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additional funds available will assist

in that cashflow with that cashflow.

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Halt there.

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Speaking to a business

that sells products.

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You know, you might find yourself where

there are just some debtors that are just

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regular late payers, and you've gotta

look at the cost to your business of that.

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And the cost to your business is

the alternative finance that you

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need to get to put into top up

the cash flow as a result of them

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paying, let's say at 90 day terms.

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There's an old 80 20 rule.

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You know, there's normally the top 80%

of your customers will take up 20% of

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your time, whereas the bottom 20% of your

customers will take up 80% of your time.

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And why are they taking

up 80% of your time?

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And generally it's because

they're the late payers.

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They're the ones that you

gotta continually follow up.

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They're the ones that make you not

sleep at night because they're not

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paying in accordance with their terms.

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Quite often I have to say to clients,

what you need to do is continually look

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at that bottom 20% of your customers

that are taking up that 80% of your time

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and look at revolving amount and looking

at removing them from your business.

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'cause you remove those customers from

your business whilst your income might

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fall marginally in the short term.

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It frees you up time

to gain new customers.

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So we've always gotta be looking at,

at our customers and at our debtors

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ledger and really, really focusing on

circulating those debtors who are not

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paying within terms or are perpetually

late and costing your business money.

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Anthony Perl: As a old adage that

I swear by as well, the less they

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pay, the more they demand, correct.

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Again, the 80 20 rule.

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Yeah,

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it's so true, isn't it?

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It's, I think there's plenty of businesses

that are sitting out there just right now

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and going, yep, that's, that's exactly it.

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And it, and it, and it's hard.

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I remember talking a few years ago to

someone who was running quite a sizable

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business and at this particular point,

the business was, we are building

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and technology in that sort of space.

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I remember him telling me, saying, I

spent this week having uncomfortable

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meetings with people because I was sacking

clients, where, you know, I literally

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had to sit them down and say, I love

you, but this isn't worth it anymore.

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You need to go over here.

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I recommend you someone else.

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But it's time.

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We part ways.

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It's not an easy thing to do

because you know, sometimes you have

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these legacy clients for lots of.

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Reasons.

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Sometimes you're passionate about them.

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It's hard to make those kinds of

decisions, but you're absolutely right

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that it's, you've gotta look at how much

time are they taking up and for what

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amount of return and how much value could

you get by bringing on, you know, the

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value of new clients and looking at that.

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It's an uncomfortable territory

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Darren Vardy: and certainly

is particularly where the

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emotional connection comes in.

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You know, some of these clients may have.

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Supported the business when it first

came out in operational, and people

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through the evolution of time, moved

beyond that business relationship

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to a personal relationship.

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And so you get back to the

difficult conversations because

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of the emotional connection.

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But when at the detriment of your

business, the business relationship

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you have with these customers

has a detriment to your business.

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If you can't put your hand up and have a

conversation with that debtor in the first

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instance or in the second instance, when

you have that conversation, that debtor

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is offended by the fact that you, you are

raising this particular issue with them,

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well, then you've gotta ask yourself, are

they really a valuable customer to us?

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If they can't have that

conversation with you.

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So for me, I then say, well, that's

really an easy, you've just answered

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the question as to why we're having

the conversation and the reason why

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I shouldn't be dealing with you.

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Because it may come a time in the

future where the debt gets quite

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significant and then they end up in

an adverse financial position and that

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debt becomes a bad debt, which then add

the flow on effect to your business.

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Anthony Perl: Yeah, and I'd imagine

that, you know, being in the space that

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you are in, sitting down with businesses

who you know to try and resolve cashflow

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issues for them and telling them, here's

five businesses that you've got a sack.

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Darren Vardy: It's hard

when it gets to that point.

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Yes.

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Yeah.

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And that's where it, quite

often, an advisor is good to

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come in to help you work through.

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Those issues and it need be, implement.

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So to help you protect your business.

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Anthony Perl: Yeah.

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I mean, is that something

you get involved with?

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It's actually doing that.

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Can you be the one that has those

uncomfortable conversations on

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behalf of the business have done

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Darren Vardy: in the past?

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And you know, what we bring to the table

is une, emotive pure numbers, and we have

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a bit of empathy towards the position.

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Quite often you do get some good outcomes,

but if the outcome on the other side is

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that, or as I indicated, if the response

on the other side is that of the fact that

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the conversation is offensive, well then

you know that this isn't the right fit

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customer for the business and it's better

to call it a day sooner rather than later.

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Anthony Perl: Yeah.

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And look, and I think, you know, I imagine

in most cases that idea of recommending

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them to someone else, introducing

them to someone else who might be more

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fitting and be willing to work with them.

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'cause I think often the case is when

you find yourself being a small fish

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in a very big pond, to move over to

someone who's gonna treat you as a

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big fish in their pond is a positive.

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Darren Vardy: Yeah, this is true.

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This is true.

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Anthony Perl: So talk to me a little

bit about, you know, the whole idea

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of saying, okay, the, the modeling

and the tools that you need to put

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in place to manage your cashflow.

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What are the important take homes

for people to start thinking about?

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Darren Vardy: Yeah, look, there are

plenty of tools out there, you know,

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from cashflow specific tools to

programs to, to like, but you know,

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with the majority of small businesses,

it's probably more easier to run.

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A simple cash flow model on an Excel

spreadsheet, and quite often it is

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as simple as identifying and working

out what your monthly expenses are

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that you know is a constant month in

month out, because it's those monthly

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expenses that need to be covered.

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And that's the income required to cover

those monthly expenses is where you get

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to what's called your break even analysis.

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Helps you identify how much income

you need on a monthly basis to

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ensure that you are cashflow

positive or at least breaking even.

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Anthony Perl: Yeah, I mean, I

think it's important to get that

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overall perspective, isn't it?

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I mean, how often do you find

that businesses just don't

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have a grasp on those basics?

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Because I think we often forget

that the people that start the

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business may not be financial people.

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They've gone into the business.

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They could be creative.

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They could be technical.

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They've got an area of expertise

that they're great in, but it

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doesn't automatically assume that

they know everything about finance.

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And those what might seem simple in

terms of cash flow management can

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be incredibly arduous and difficult

for someone who just doesn't get it.

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Darren Vardy: So I think it's fair

to say that we small business.

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Any business owners that are treating

their company's bank account as

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if it's their own personal bank

account, uh, fall into that category.

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They lack the understanding of what

cash flow is required to operate their

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business, because if they were on

top of their cash flow, they would be

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paying themselves a reasonable wage

for which they would be living from.

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On a week to week, month to month

basis, which would then go into their

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calculations as to the cash inflow

needed each week or month to cover

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the cash outflow that is expected.

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Anthony Perl: Yeah, I mean, I

think it's important, isn't it?

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That simple act of taking out an amount

on a, whether it's weekly, fortnightly,

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or monthly basis, to pay yourself a wage.

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Just the act of that happening

automatically is a huge differentiator

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in the way you view what's in an account.

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Darren Vardy: Correct?

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Correct.

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And you know, again, we get back to the

old adage, if there isn't sufficient cash

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coming in to pay your wage, why we here?

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Anthony Perl: And it is such an

important question, and I think it's,

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you know, a lot of people mask it

by being, oh, I'm in startup phase.

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How long is startup phase four?

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And at what point are you continuing

to throw money into a sinking ship?

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And that's where this

is, you know, important.

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Darren Vardy: Yeah, and it's

interesting, you talk about startup

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pace, there's cashflow modeling

and then there's forecasting

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to do a forecast for 12 months.

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Two years, three years is also

important because that's what

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you're aspiring to achieve.

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And it might be that for the first

12 months you are in startup phase

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or six months, but there is a certain

point in time where you want to get

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to a position where you are at a break

even level, if not surplus, where all

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of your expenditure is being covered.

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That expenditure includes reasonable

remuneration of its directors for

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the work that they put in into the

business at any given period of time.

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Now, obviously at startup phase, directors

put an enormous amount of hours in

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set up doing, managing, so on and so

forth, but at a point in time as the

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business grow and staff comes on, the

business will get to a level where it is.

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Self-promoting and growing, where the

directors can sit back and say, okay, for

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the amount of time and effort I'm putting

in, am I being properly remunerated or

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appropriately remunerated from my efforts?

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And if not, why not?

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And what does that need to be?

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And as a result of that, what

does the income need to be

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and can I actually get there?

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And what do I need to do to get there?

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And then create the plan to get there.

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This is where the forecasting is important

because you have your forecasting because

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you don't want to be going on year, on

year, on year, not putting in time and

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hours and effort and not being properly

and appropriately remunerated for it.

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Anthony Perl: Just to wrap up

this conversation, I'm intrigued.

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From your perspective, how often is

cashflow one of the biggest reasons

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that people come to you, or in fact

that they come to you or they find

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themselves at your doorstep and you

discover that this is the biggest problem?

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Darren Vardy: Well, it's because of

lack of cashflow that people have debt.

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So cashflow is the real reason.

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Behind a, the existence of the debt

at the time that they come and see me.

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And the lack of cash flow is the

reason why they can't see light at

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the end of the tunnel in being able

to repay that debt over a reasonably

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short period of timing of the fisure.

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And it may well be that

there is a possibility to.

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Have a working capital injection,

and it may well be that the

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family home is refinanced to put

some funds in to pay some debt.

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But then the concern is, does

that stop the trading losses?

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You know, whilst it sorts out the

historical debt, all you're doing is

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replacing one debt for another debt.

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So then you've gotta look at it and say,

well, okay, why are we here and what do we

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need to address to make sure that we trade

forward profitably and make it worthwhile?

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Putting the money in as opposed to

calling it a day at that point in time.

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Anthony Perl: Yeah.

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And of course you've also got the problem

that if you're going backwards, can you

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actually get the loan in the first place?

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That's also an issue.

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Correct.

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Well, that's it for this episode of

the IO Insolvency Options Podcast.

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I hope you've got plenty of valuable

knowledge and practical steps for whatever

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: 00:17:43

your situation is from Darren today.

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And if you need guidance on

insolvency matters, contact Darren

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Vadi directly@insolvencyoptions.com

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au.

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Or call 1804 6 3 3 2 8 or of course you

could connect with Darren on LinkedIn

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details in the show notes below.

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With over 30 years of experience,

Darren and his team provide personalized

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solutions for both personal and

corporate insolvency challenges.

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: 00:18:08

This episode was produced by my

team at podcast, done for you.

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Dot online helping professionals

share their expertise through

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powerful podcast content.

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If you found value in today's episode,

please like, comment, and subscribe

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to the IO Insolvency Options podcast.

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Wherever you are listening to this, your

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owners who need these crucial insights.

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Until next time, remember, there's always

a way forward when you know your options.