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WED2B’s Finance Team Keeping Cash High on the Business Agenda

The role of cash for an SME is not markedly different to that of a large company, but arguably there is more pressure to get the numbers right. Juliana Kitching, Finance Director, WED2B, the UK’s largest bridalwear retailer, shares her insights and experiences of financial leadership across a range of businesses, offering some tips for success.

Since launching in 2009, UK-based bridal wear designer and retailer WED2B has opened 59 stores across the UK, Ireland, Belgium, the Netherlands and Germany. The company is therefore well aware that building a business can be cash intensive and that what is needed is robust data, solid reporting, precise calculation methods, and strong cash flow planning. It also recognises the importance of a cash culture.

The organisation has found that progress along these lines can be greatly enhanced when deploying a single platform capable of aggregating, analysing, and reporting all of its financial data. To this end, TMI Innovation Lab entry, Agicap is becoming a fixture in WED2B’s active growth plans to enhance its current cash flow modelling.

Future of cash

Kitching arrived at the bridal business via her role as Head of International Finance at The Foschini Group, a South African publicly listed retail clothing giant, and as CFO of South African direct-seller of soft furnishings, Pres Les. With this experience, combined with almost 12 years spent auditing retailers through KPMG, she knows only too well that cash is still king whenever a business is under pressure or seeks to thrive. In her experience of auditing large retailers, cash is considered through monthly management accounts, and ensuring trading is within bank and loan facilities.

While WED2B’s cash flow model is sophisticated, it is based in Excel. The data feeds are not automatically integrated, requiring significant manual intervention and dependency on those in the finance team who understand it.

At WED2B, cash is reviewed weekly. Other firms may often feel that in a more forgiving market they have no need to monitor flows in any depth, many relying on low-cost facilities to pave the way for growth. But with many retailers struggling in the face of a market downturn, those facilities may no longer be taken for granted.

As an example, for a business that relies on credit, when incoming cash begins to dry up, credit sales may sustain it for a while, but credit can delay the point at which cash hits the company’s accounts. When that happens, suddenly there is increased pressure when, for instance, paying suppliers. If stock lines suffer as result, and customers begin looking elsewhere, the pressure intensifies. But it need not be like this. As Kitching notes: “If you have a good handle on your cash, you have a good grasp of what you can and cannot do. At WED2B weekly cash forecasting enables us to navigate the peaks and troughs of cash cycles as consumer behaviour changes.”

Educate for progress

The importance of including the cash impact element within strategic decisions adds to the pressure on finance leaders to deliver. “It’s definitely not something you should leave with a junior,” says Kitching. In WED2B, it’s handled at C-suite level, with weekly meetings scheduled with the business because it is expanding rapidly, and requires a detailed understanding of its cash flow and accurate forecasting.

Of course, it will then be a matter of knowing which levers can and can’t be used. It may be more appropriate – not least because there is a social and in some cases regulatory responsibility to the broader business community – to expedite payments to smaller suppliers, and negotiate extended terms with larger suppliers. And when in a strong cash flow position, it’s important to know how cash can be invested to give the best return for the business and its shareholders without creating a liquidity issue.

With finance teams often assuming a more conservative approach to decision-making than their marketing and sales colleagues, it is incumbent on the leadership to find the balance. This is where their ‘cash education’, and the visibility and analysis of cash flows, will yield results, says Kitching. “The more senior eyes on those flows the better because then it becomes easier to identify and respond to issues and opportunities from multiple angles, including finance, sales and marketing, procurement, production, and logistics.”

Hot on the numbers

Large and listed entities often have the benefit of bank facilities, and as long as they remain within agreed covenants, these remain open, notes Kitching. However, in smaller entities, cash discussions and decisions are often delegated to the finance function, reporting up any concerns as they arise.

From experience of auditing retailers, the information packs typically created for the board and the audit and risk committee, often underscore a high-level focus on cash, she says. “Cash would always be one of the bullet points. The general view was that if money was in the bank, and the covenants were being met, then all was fine.” But when growth is planned, cash should absolutely be the number one priority. Finance will be under pressure to explain cash availability, making the timing and integrity of forecasting crucial.

“In our case, if we’re not hot on the numbers, we could find ourselves opening a store when we don’t actually have the cash because there’s something wrong with the cash flow forecast or our data is outdated. That very quickly becomes a broader business issue,” Kitching explains. “I need to ensure everything flows into our expansion and growth plan. It’s why cash flow is currently more important to me than profitability.”

In a cash context, scenario planning – modelling the outcomes of hypothetical events that could impact business plans – is essential for WED2B. It means discovering the main drivers of cash. For WED2B these include stock, rental payments, and salaries. Close monitoring of these should see the other drivers fall into place.

The timing of these activities, and elements such as stock ordering and intake versus payment, matter most. “In the wedding industry, we don’t have a consistent cycle in the same way a regular high-street fashion retailer would. Our peak cycle is linked to the warmer months,” she reveals. “Understanding the cash cycles is especially important in our business. We need to plan for the upside and the downside.”

Opening a store obviously has a big cash flow impact, so the aim for WED2B is always to target the opening at the right time to accommodate peak trading and to take advantage as far as possible of the selling cycle.

But it’s important to be realistic with each forecasting scenario, warns Kitching. Conservative cash flow metrics, based on normal store trends, are preferable to providing figures that the finance department thinks the board wants to see. Doing that may result in sign-off on a store roll-out that potentially could fall short.

“It’s so important to understand the cash flow maturity cycle of a new store, and what you can and cannot handle,” she warns. “While being conservative may produce more red than green in your forecasting tables, I have seen store roll-outs in some businesses where the results were far too bullish and when one or two stores don’t start churning as planned, it could materially impact the business.”

The tactics deployed to bring cash flow data in line will be applicable to both small and large organisations. The fundamentals include keeping a tight rein on stock holdings,  turnover, and payment terms. But it sometimes happens that a business is not entirely aware that it is building up quite a large volume of stock, notes Kitching.

It would not want to be in a position where a run on sales cannot be met. It needs to balance stock cost with how much it can afford to hold. This makes working capital management critical in terms of controlling the right level of stock at the right time. In retail, this must align with targets for each store, and these must be regularly assessed.

“You have to know the peaks and troughs for each store,” continues Kitching. “Run short of stock and you will lose sales. Overstock and you need to pull back on your ordering. But if you are committed for the next year, as is often the case in fashion retail, you have to work closely with your suppliers. If stock arrives late and you miss the peak, you are stuck with stock that you have to manage. It’s cash sitting there doing nothing.”

Her advice is never to order in isolation. “Work with the heads of the various teams and challenge each other about everything that could impact your cash position. Cash is a business-wide topic. The whole business needs to own it and take responsibility for it as much as finance must.”

Cash communication

By establishing a cash culture, finance is able to provide business leaders with the wherewithal to understand the enterprise-wide impact of cash, and show how it can be best managed from each perspective. It certainly has to be part of the conversation when strategic decisions are being made.

This is why within WED2B, the broader business leadership is an active participant in the cash conversation. Describing this level of focus as “an invaluable partnership”, Kitching explains: “As soon as the finance function is alongside the business, and is open to regular ‘warts and all’ discussions on what the numbers indicate, they begin to fully appreciate the value and impact of cash.”

It’s no secret that finance is often seen as the killjoy when it comes to spending. “But it’s our responsibility to keep the business on track,” counters Kitching. “We need to be the voice of reason when other functions get too excited or ahead of themselves. When times are challenging, finance needs to get into the business and make sure it is discussed.”

Having that regular honest conversation about cash, and exposing its potential pinch points, assists in finding the most appropriate levers to manage those peaks and troughs. As Kitching says: “A simple conversation often opens a door that makes life easier in tough times – and in good times, creates opportunities for stronger growth planning.”

A better way

In creating, presenting, and responding to a set of cash flow figures, Kitching is aware that Excel formulae and re-keyed data can be subject to errors. “You need a system you can trust, so the finance team can focus resources on operating the business, rather than constantly double-checking their calculations and analyses.” This is especially important in the current economic climate, and given the number of data sources and the frequency with which cash flow data is needed to produce usable forecasting information.

Kitching, “tired of the manual nature of the cash flow model”, thought “there must be a better way” to speed up the collection and analysis of the cash flow data. This led her to the door of cash flow monitoring platform provider, Agicap.

The rules-based AI-enabled solution is being implemented and tailored to meet the needs of WED2B’s own circumstances. It now automates much of the cash flow data points such as analysis of the firm’s bank transactions directly with the bank, in real-time, collecting key data such as invoicing and payables. Once aggregated and analysed, it will be used to create and present live actual and scenario-based cash flow planning and forecasting. While WED2B’s Excel modelling has served the business well, the speed of delivery and scenario planning abilities made Agicap “very appealing” to WED2B.

“The platform’s very visual output will be quickly and easily presentable in the boardroom,” she reports. “It means I can demonstrate straight away what the impact of certain scenarios would be. And it will really save a lot of time because the system automates most of the data feeds. It removes the mundane manual work, helping me focus on what the numbers are saying.” The ease of use of the platform is “phenomenal”, she enthuses, adding  “the more you throw at it, the more it can take”.

With the retail environment still under considerable pressure, understanding cash dynamics means a daily visit to the Agicap screen for Kitching. “It’s the quickest way for me to have visibility of all our bank accounts in one place so I can check my expectations,” she explains. “Cash flow for a growing business such as WED2B is critical, and getting us to a point where the right data is not dependent on people reduces the execution time and increases the time available to focus on scenario planning.”