MyCIMA

Responsibilities in a struggling Business?

Posted: Sunday 07 February 2010 by Mark Wild
Replies : 7

I've been asked to help out a company that has acquired another business that recently went into administration. In doing so it now has severe cash flow problems which from the forecasts I've done will continue at least in the short term. Can anyone give me some advice as what are my responsibilties and any suggestions on ways forward. They've bascially invested in WIP but this WIP will take a while to realise into cash/profit. In the meantime they've dramatically increased their overheads and salaries and payments are a concern.

 

Thank you in advance for your suggestions and guidance. 

Cash Flow

Posted by Mal on Sunday 07 February 2010 21:07
As an immediate measure consider factoring or invoice discounting. A costly measure perhaps but may help short term. Also look at stock surplus. Can slow moving or obsolete stock (or assets) be sold without affecting the business?

Finance

Posted by Tracey on Tuesday 09 February 2010 10:48
Have you looked at any forms of finance - an increased overdraft for the period indicated from your forecast could be an option.

Power over creditors?

Posted by Mal on Tuesday 09 February 2010 11:24

Are you in a position where you can negotiate extended terms of payment with your suppliers? explore free credit terms before looking at costly overdrafts. Look at JIT methods to free up working capital. If you invest in WIP then are stage payments being invoiced regularly?

Working capital management and communication

Posted by Chucky on Wednesday 10 February 2010 04:03

Personally, I'd go aggressive with working capital.
Eke out as much as possible from your debtors whilst extending payments with your creditors. I would try and avoid the factor and invoice discounting route if better management can obtain the same results.

Whilst factoring, inv discounting will bring in immediate cash, they will impact the liquidity of the business, maybe severely, especially in the current position. Why the dramatic increase in overheads? Cut all discretionary and unjustified outflows.

Communication with your bank and creditors is key here as they may be able to defer any payments/charges and or provide emergency funding (bank) if a solid recovery plan is in place. This would be more preferable than entering  into new finance arrangements.

An understanding of why or how the company got into this would also help in its recovery, but that also depends on how far up the food chain you are.

Having said that, it may transpire that new finance sources are the way out but its hard to say definitively without all the details.  

 

 

Can you identify the risk levels?

Posted by Adrian Rutter on Sunday 14 February 2010 11:53

Can you be comfortable with the risks-levels within your cashflow - what I mean is, are you sure the liquidity problems will be resolved when the WIP and stocks are turned into cash, or is all this dependent on possibly-optimistic sales forecasts? The difference is fundamental to what you do next.

It sounds like you'd be in a very weak position to negotiate factoring or invoice discounting, and even if you can get it, at your level of risk the cost is likely to be astronomical. My advice would be to avoid that completely.

If your company had a good previous record of payments, both HMRC and your local authority can allow you to defer statutory payments according to an agreed schedule. Worth a call to your local HMRC and council offices, especially if you point out that by helping your cash-flow they'd be preserving local jobs. 

Have you been able to rank your creditors in order of the size of their teeth, and gauge how open you can afford to be with all of them? Avoid surprising them whatever you do. Any creditor who's owed more than £750 can start compulsory liquidation proceedings, and if you're asset-rich but cash-poor, then unless you're working with them, they may just decide that's the only way to get even part of their money from you.

As others have suggested, basic admin now needs to be in survival mode. Stop absolutely all spending unless it's directly contributing to the company's survival, discreetly turn everything not needed into cash, ensure invoicing and debtor-control is completely up-to-date and error-free, and be as open with your funders as you feel you can be based on your assessment of risk. Depending on the company culture, I'd suggest you also involve everyone as much as you can. People aren't fools, and they probably all know there are problems; getting everyone to turn off unnecessary lights and join-in the solutions can be surprisingly effective. Given the right management, situations like yours can be the making of the company in more ways than you might expect.

You haven't said what your role is in the management hierarchy, but do watch out for the directors' pitfall of "wrongful trading" if the company cash-flow forecasts are more wishful thinking than reasoned risk-assessment.

Good luck with all this.

Thank you

Posted by Mark Wild on Monday 15 February 2010 22:15

Thank you for all your very useful suggestions. I've taken on board and implemented many of your ideas. As a team we've looked at both cutting our cloth and driving sales. Think we can progress with hard work and already seeing some positive results. Will keep you posted.

 

Thanks again,

 

Mark.

TURNAROUND ADVERSED CASHFLOW

Posted by Goh Pei Loong on Thursday 11 March 2010 02:11

( 1 ) DEFER CAPEX SPENDING

( 2 ) PRIORITISE PAYABLES INTO PRIMARY AND SECONDARY PAYMENTS.

( 3 ) PLAN CASH OUTFLOW WITH CASN INFLOW TIMING. ALWAYS RECEIVE ONLY PAYOUT.

( 4 ) SECURE OVERDRAFT OR BANK FACILITY TO STAND-BY ENSURING SURVIVAL OF ORGANISATION.

( 5 ) ENSURE CREDIT TERMS OFFERED TO CUSTOMERS ARE SHORTER THAN SUPPLIERS/VENDORS GIVEN CREDIT TERMS.