By Stephen Hiscock
Take your pick of the expectations for the UK's economic future but any reasonable person would lay money on the general situation being worse in 12 months time than it is today. However good the overall outlook, it will be of little or no consolation to those businesses that meet a financial brick wall, whether that "landing" is hard or soft. The trick lies in seeing the signs and being prepared.
First, businesses fail when relationships break down.
Second, good working relations can help a business to survive against the odds.
Third, blood relations need particular attention. Family run companies can find it hard to implement major changes, so allow more time.
Those are the facts. The lesson is deceptively simple.
Every one of us finds it difficult to look in the mirror and examine the reflection through dispassionate eyes. Some are super-critical, others can see nothing but good in themselves. Both are wrong. How much more difficult for the company and its directors, where the personality of the corporate body is made up of complex relationships, before external contacts come into play. Even once the reflection has been properly analysed, action has to be planned and implemented, and changed as the situation develops. The unseen can become the blindingly obvious rather too soon for comfort.
Now is the time to make sure the right people are dealing with key areas and the external relationships are in tip top condition.
When the financial screw is turning, this is the one relationship that has to remain the same if at all possible. Some survival options may require negotiation with key clients, but the primary objective has to be to maintain a serene appearance on the surface, even when paddling desperately underneath. Good market intelligence will be alive to changes in perception and its interpreters should be able to judge the correct measured response.
These vital people also owe you money. It is much easier to establish the optimum approach to debtor collection before the financial pressures make it an imperative. Get your customers used to swift and persistent (but courteous) follow up while times are good.
If this group does not spot the changes, you probably have more problems than you thought. All hell will break loose when the penny drops. Each key creditor needs to be considered as an individual. Are their sales to you important to them?
Careful examination of this area may change your views on where to take liberties. Do not look at the statistics, consider each creditor who might make a critical difference and manage them directly.
Are you sending out messages that suggest you are in control? Examples include setting new payment dates and sticking to them, phoning to warn of a problem in advance and providing regular updates on progress. It goes without saying that cheques should only be issued if they will be paid. Alternatives include giving a definite date when the cheque will be sent and setting up an instalment programme, whether formally agreed or not.
A carefully prepared daily cash forecast can be a lifesaver. The right people working on cash flow and creditor and debtor management can make a big difference.
Your banker is probably your largest creditor, but often feels no better treated than a mushroom (kept in the dark....... etc.). If this is a deliberate tactic you are making a big mistake. Even when fully informed the bank will always be less optimistic than you are. Head Office people are generally more pessimistic than their branch colleagues. They have been proved right too often!
Try to get referred to an intensive care/corporate support/credit watch department. You might not like what they say, but the relationship will almost certainly be more predictable than dealing with a branch manager referring to an advances department. From the outset, assume the relationship is in difficulty, and do not try to attribute blame for that. What can you do to improve it? What will help the bank? A good margin in their security does not necessarily mean they will be ready to lend more.
Experienced and effective independent bankers specialising in turnround advice are hard to find, but their help is essential if the advantages of the UK overdraft system are not going to be lost.
"The shareholders are fully supportive of the business" has to be one of the most misunderstood statements of all time. Will they produce more cash? Can they, even if they wanted to? Is the statement merely a promise not to sack the managing director until next week? Do others (the bank for example) view that as good news or bad? Can the owner manager really be the company doctor?
An accountants' investigation was once seen as purely a precursor to receivership. That image is rightly disappearing. Use careful preparation to make sure it does not make a sudden reappearance in your case. Devise a survival plan which the accountants can help you refine and then endorse for the bank. Again expert help, before the accountants arrive, can make the difference between survival and the unthinkable.
If the answer is yes - make sure it stays that way.
If no - now is the time to devise a plan to improve the situation, before it is too late.
Return to Articles