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Being aware to signs of distress is key to business existence

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Simon Underwood - Menzies Accountant

Simon Underwood – Business Recovery Partner

With the current Coronavirus pandemic disrupting all businesses of all sizes, looking for new ways to alleviate pressures on cash flow and improve financial resilience is important. However equally business need to be aware and recognise the signs of financial distress to be able to take action as soon as it arises.

Working from home is not possible for all sectors

In response to Government guidance that employees should work from home wherever possible, many organisations are maintaining business continuity by implementing remote working arrangements. However, areas of UK business where this usually is not an option, such as the retail and hospitality and leisure sectors, are facing significant disruption to their trading activity. Many businesses are facing high levels of financial stress.

Act quickly when red flags present themselves

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By noticing and reacting quickly to financial red flags, companies could relieve some of the immediate pressure on cash flow, maintaining business continuity through the crisis.

If it is becoming increasingly difficult to pay creditors or employees on time for example, this could be a sign that there may not be enough cash in the bank to weather the storm. Another key indicator that financial trouble is afoot could be the sudden changes in communication patterns with key customers, along with if payments are delayed, this could then have a negative impact on cash flow.


10 tips to managing your business through Covid-19

  1. Pay close attention to your turnover as it declines and attempt to predict how quickly it will return and what ‘normal’ will look like.
  2. Communicate appropriately with your customers and key suppliers.
  3. Begin exploring cost cutting exercises and consider payroll reduction strategies.
  4. Record any and all decisions made and the reasons for them.
  5. Speak to your Menzies relationship Partner about how your bank and business stakeholders may be able support you.
  6. Continuously review and manage the situation especially in relation to reduced turnover and resource arrangements.
  7. Research and consider all government measures to support your business.
  8. Identify and reduce any and all areas of discretionary spend.
  9. Review key business and supplier contracts.
  10. Cash is king so be sure to have robust cashflow forecasts – these should be updated and reviewed regularly.

Remember the earlier an Insolvency Practitioner is involved in discussions, the more options there are for business that may be facing financial difficulty so speak to a Registered Insolvency Practitioner as soon as you believe your business might be in trouble.


How will governments measures help businesses?

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In an emergency measure to strengthen the economy against the coronavirus crisis, the Government has announced a £350bn support package for UK businesses. This includes £330bn in loans, £20bn in other aid, a business rates holiday and special grants for retailers and pubs, which have seen footfall dip dramatically due to advice about the importance of social distancing. However, with application processes and criteria for claiming these reliefs still being finalised, and initiatives such as the Bank of England Lending Facility likely to require a lengthy due diligence process, it is important to note that they will not provide cash in the bank immediately and businesses should also take proactive steps to improve their cash position.

Remember ‘cash is king’

In these extremely challenging times, businesses should remember the adage that ‘cash is king’ and make cash management a primary focus. Implementing a strong credit management strategy and calling in debts where it is possible to do so, could help to ease pressure on cash flow.

Build trust with your creditors

Over the course of the next few months, it may also be necessary to talk to creditors about extending payment terms. Once promises have been made, it is important to stick to them. This will build trust, helping the business in the event that a similar conversation is held in the future. When communicating with creditors about late payment, clearly explaining that it will not be possible to make the payment on the due date and setting out the steps that will be taken to ensure they get paid is vital to maintaining valuable business relationships.

What to do when you see the first signs of financial distress?

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When you spot the first signs of financial distress in your business, you should seek advice from

professional insolvency practitioners and business recovery specialists. These advisers will be able to suggest practical solutions for improving cash management and operational resilience.

This is an exceptional crisis which is bringing unprecedented challenges for businesses in every industry sector. While all organisations will face difficulties, it must be hoped that with a strong focus on cash management, businesses will make it through the crisis and become more resilient as a result.  

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