Comments from Freddy Khalastchi, Business Recovery Partner at Menzies LLP
Sluggish consumer spending and mounting cost pressures are placing immense pressure on retailers, causing cashflow difficulties and an alarming surge in insolvency cases. Taking a proactive approach to financial management will be crucial to survival through this period and into the new year.
Recognise the warning signs early!
Recognising the warning signs of financial distress early on is paramount. For retailers, a close eye should be kept on sales data as well as whether it is becoming more difficult to pay run-of-the-mill expenses such as salaries, rent and loan repayments. These key performance indicators can provide clear signals that a cashflow crisis is looming and that a business needs to seek advice about how to manage the situation before things get worse.
In the event of cashflow issues, vigilant monitoring of stock levels is essential. Overstocking could leave the business holding outdated or unwanted products, and negotiating to secure flexible supply agreements can help to avoid this. For businesses purchasing stock from outside the UK, hedging against exchange volatility can help to further protect margins.
Additional finance options are available
To avert or try to solve a cashflow crisis, additional finance options are also available: overdrafts can be useful as a short-term solution, but need careful management to avoid higher interest payments and potential reclassification as loans. For smaller business owners it’s imperative to avoid dipping into personal finances as a short-term solution. This often leads to unsustainable debt burdens and, in extreme cases, personal insolvency.
Make sure you intervene early
Above all, the importance of early intervention in times of difficulty cannot be overstated. Spotting signs of trouble early, being proactive in communicating with lenders and suppliers, and focusing on cashflow management can all improve the chances of navigating the coming months successfully.