Brokers may face a cash crisis under new FSA client money rules. Debbie Clarke explains how to beat it

' With regulation effective from tomorrow the FSA will be expecting brokers to turn their words into deeds.

A particular area of concern is the segregation of accounts to protect customers' money. The FSA has said that brokers will be able to withdraw commission from client accounts, but only on a "received" basis.

This may leave brokers with a cash shortfall that will need addressing. There are a number of steps a broker can take to minimise the impact of this:

  • Analyse business lines and identify the true cash position of each line of business and its implications on cash flow
  • Use this information to put together an integrated cash flow, balance sheet and profit and loss
  • Identify whether there is a short term cash flow issue. When a broker moves from an earned basis to a "received" one there is likely to be a short term drain on cash. Understanding what business you do and what could be separately accounted for outside the FSA regime may help to reduce that gap (such as reinsurance)
  • If there is a short term cash requirement speak to your bank. The view of many high street banks is that their clients should have raised the issue with them already and those who haven't may find it difficult to secure funding. However, there are banks who know the industry well enough to assist
  • Put together short term cash management solutions, such as ensuring payments to creditors are staged, outstanding payments are chased and reviewing the viability of dividends
  • Enable individual teams to contribute to the exercise by allowing them autonomy in terms of bringing cash turnaround times down. The relationships with clients of these teams is key and they will often be in a better position to speed up payments.
  • In many circumstances the total financial requirement of a broker will not be evident until it analyses each book of business to reveal its true debtor position. Providing both your bank and shareholders with this information early will minimise any unwelcome surprises.

    These activities represent a level of business analysis that many brokers will be unfamiliar with, but now is the time for action.

    ' Debbie Clarke is director, corporate finance, at Mazars