Distinguish the signs of financial distress
Usually when a business is in financial distress, it experiences a decrease in revenue and difficulties with paying creditors, which could be more prevalent in some situations than others. For businesses in retail and hospitality & leisure, reduced footfall will impact earnings directly, but in other sectors there could be a lag effect, where there is a pipeline of orders to fulfil.
Seek professional advice and act quickly
If financial distress is identified, it is essential to act as quickly as possible by concentrating on cash management and taking steps to progress operational resilience. The sooner a business involves an insolvency practitioner, the more chance it has to survive.
Ease pressure on cashflow and reduce costs
Cost reduction techniques can help reduce cash flow issues. A business may need to make difficult decisions with payroll reduction, as well as spotting ways to reduce discretionary spending. Furthermore, a critical analysis of fixed costs, such as property costs, should also be undertaken.
Concentrate on credit management
If the business is experiencing cashflow difficulties, it would be beneficial to call in any outstanding debts and maintain a close check on credit lines. In addition, outsourced support to bolster the cash position and improved operational efficiency in this area may be helpful to a business.
Utilise support and stay informed
It is essential for companies to keep up to date with various support schemes, to help them stay in business through this period of difficulty.
Contemplate other ways to improve the business’ cash position
Due to the pandemic businesses need to find new ways of improving their cash position, such as through selling surplus assets. Forecasting their cashflow can help the business to weigh up the pros and cons of taking such action.
Evaluate key business and supplier contracts
If a business is quick to review their contracts, they may be able to put themselves in a better position. Moreover, it may be possible to renegotiate terms and conditions in the business’ favour.
Monitor business management data
It is important to stay alert and keep the financial position of the business under continuous review, when managing a business in a crisis. A further dip in turnover, for example, could require further changes to resource arrangements.
Connect with lenders
Keeping a two way relationship going with lenders is important, as it helps reduce the risk they will withdraw support. If you are going to deliver bad news you should speak to an insolvency practitioner first so that they can help you with your planned message and predict the lender’s response.
Communicate with customers and suppliers
Having open communications with customers and suppliers can help to protect relationships and minimise the risk of supply chain disruption.
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