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Liquidity management: “liquidity is king”

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6th Jul 2011
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Many corporates got burned during the financial crisis as a result of poor liquidity management, according to Tesco director of Tax, Treasury & Corporate Finance, Adrian Marsh.

Speaking to a packed CFO Event audience at the Celtic Manor yesterday, Marsh stressed that “liquidity is king”, adding that the one accountability you have as a CFO is making sure the company doesn’t run out of money.

“Cash management should be embedded” he said, “It’s about getting into the rhythm of the business, monitoring and projecting cashflow - month-by-month and even the cycle within each month - to ensure liquidity is maintained”

Marsh outlined the following pointers to help CFOs manage through the bad times:

  • Cashflow forecasting – lift up every “drain cover”
  • Engage on multiple fronts – don’t just listen to one adviser
  • Learn from the past – don’t assume the crisis will last forever
  • Embed within business concepts of cash and liquidity – the company does not have a blank cheque book
  • Secure liquidity even if it is not yet required – the early bird catches the worm. In late 2008 there was a sustained period of market closure
  • Ensure the board is up to speed and able to respond quickly – markets open and shut extremely quickly

While Tesco’s finances are currently in a good place, Marsh said the company’s liquidity management during the early part of the financial crisis was not so great.

Tesco learnt that driving sales was not the only thing that mattered; it also realised that paying bills early, such as rent, did not make sense: “pay when you need to pay”, Marsh said.

He also outlined the following sources of liquidity available to UK corporates, as an alternative bank debt:

  • cash/working capital
  • public debt
  • private debt
  • asset finance
  • supplier/vendor finance
  • hybrid
  • equity

Marsh’s closing remarks to the CFO audience was: “keep methodical and have a plan”.

Replies (1)

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By ksagroup
08th Jul 2011 12:33

Might be worth thinking of a DAILY Cashflow

Download our free daily cashflow spreadsheet

 

http://companyrescue.blogspot.com/2010/09/cash-flow-problems-could-be-solved-by.html

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