Too often, business owners approach advisers for support when cracks are already visible.
In times of economic uncertainty – when businesses tend to operate in a phase of hesitation and put proactivity on hold – it is easy to understand why directors opt for the ‘wait and see’ approach. But, if a red flag or issue is detected, we urge business owners to tackle any problem head on, no matter how small it might initially seem.
By working alongside specialist business advisers when you notice early signs of distress, you will have a greater chance of resurrecting your business. It is at this stage that we can provide strategic guidance in a bid to turn things around, whether that’s supporting businesses with budgeting and negotiating creditor payments, streamlining operations or focusing on areas to add value which will guide your business moving forward.
Any solid business plan should factor in regular reviews of budgets, processes and strategy. Each quarter, management and finance teams should review forecasts against actual results so that any downturns or missed targets can be detected, and then rectified if needed.
Initially, small downturns in profits or an overhead that is making a dent in your cash flow can be spotted by going over financials line by line. If you notice that something is costing you more than the benefit it is bringing to the business, consider alternatives or look at ways to restructure your operations that can reap a better return on investment.
Consider reviewing all accounts and clients you work with and whether there is scope to negotiate payment terms down from 60 to 30 days, for example. This will support your cashflow and mean you’re getting paid faster.
Equally, be cautious with capacity and only accept future orders that you know your team will genuinely be able to fulfil. This will not only stop you from overtrading but will also help to protect your reputation if you avoid accepting contracts you aren’t able to take forward. Businesses should consider looking to financial products for cashflow support. There are dedicated tools on offer to help meet increased demand with additional working capital, and in turn grow a business.
Regulate stock orders to reflect consumption, particularly for seasonal businesses. Companies operating in different sectors will experience varying levels of demands from their client base. But, it’s important that any firm is responsive to these trends and implements an effective strategy to mirror peaks and troughs of demand.
If a business runs into distress, whether that be cash flow issues or existing creditor debts mounting up, entering a Company Voluntary Arrangement (CVA) could be an option.
A CVA allows your business to continue trading with an agreement in place to repay outstanding debts over a set period of time, while helping to better protect jobs.
But, there are some things to consider before agreeing to this, to ensure this isn’t a short-term fix. This includes thorough due diligence. Consider the reasons your business is struggling to begin with. Review the market you operate in – does it have a healthy future? Will your business proposition stand the test of time? If the answer is no, it’s likely that the business would struggle quite quickly again upon completion of a CVA.
However, if there is a solid foundation, a CVA can provide a business with the second chance it needs to make repayments and get its feet back on the ground.
Management teams should speak with business advisers if their business is showing signs of distress, as this can help to identify if a CVA is plausible way forward.
If you have reached the point where you recognise the challenges facing your business, it is inevitable you will have to adapt to give your firm a chance of moving forward.
When in a CVA, change isn’t an option but absolutely fundamental to the success of the process. Old habits die hard, but it’s crucial to embrace new ideas, think creatively and deconstruct business models if there’s a chance of returning to financial stability.
Take the time to analyse what went wrong in the first place. This will help to unearth flaws and give you the beauty of hindsight to formulate a plan to try and stamp these problems for the future.
Consider bringing in an external consultant or non-executive director onto the board to help look at things from a fresh perspective.
Accepting guidance from an individual outside of the business, who has the benefit of being distanced from the day-to-day operations, will help bring insight and a new point of view to help determine what needs to be done to get back on the right track.
Throughout any period of change it is important all employees are updated regularly – be that on new business plans, direction or strategy. This keeps a level of personal involvement and engagement in the process, with the entire workforce working towards the same goal.
Seize the opportunity turn your business on its head and impress creditors, stakeholders and customers alike.
Having access to finance, particularly if you are a smaller business, is crucial for development and managing cash flow cycles. Companies should consider approaching banks or lenders for financial products and support to help secure investment and drive growth in the business.
For example, it can be costly for manufacturers to invest in new technology or machinery. But, this equipment is usually vital for the day-to-day running of their business and to maintain a competitive edge. Implementing financial products such as asset finance or hire purchase can help soften the blow of large upfront costs.
That said, financial directors should consider the implications loan repayments may have on day-to-day cash flow, budgets and operations. Ensure that the value of the purchase outweighs the extra cost this will add to your monthly outgoings, to avoid landing in a situation that is costly with no visible return on investment.
What underlines this, is to act fast if you see the slightest glimpse of financial distress. Prevention is ultimately better than cure, and the earlier on you are able to approach a business adviser about the problems you are noticing, the better.
First published in the Essex Chronicle in April 2019.