The last recession saw an unprecedented number of Insolvencies and Liquidations, many of which could have been avoided with a little foresight and planning.
Reviewing some or all of the following steps may help to survive a “cyclical downturn”
1. CASH FLOW FORECAST
Prepare a Cash Flow Forecast for the next twelve months and the twelve months following, projecting income, expenditure and net profits/loss on a month by month basis. Insert the actual income and expenditure figures on a month-by-month basis to compare the variance.
2. BUSINESS PLAN
Review or renew your original business plan. Set out your objectives and the various steps needed to achieve those objectives set against rigid time scales and costings.
3. CREDIT CONTROL
Send out invoices with goods or in the service industries, ensure that invoices are sent out immediately upon completion. Where goods or services are provided on a regular basis, invoice customers on a regular basis. Send out statements monthly and ensure that you have an efficient credit control system to diarise and chase non-payers. Limit the credit given to customers unless you’re certain of payment in order to avoid loss on default. In any event, endeavour to keep the Debtor Collection Period down, and if possible, reduce it. Chase up overdue accounts by telephone; request payment by a certain day and telephone them back if payment is not received.
4. ALL EGGS IN ONE BASKET !
Try and avoid being dependent to heavily on one customer. This is defined by one customer having more than 10% of your Turnover. Try to diversify if necessary. In the event of that customer becoming insolvent, it may create cash flow problems for your own business.
This is invariably a major item of expenditure for most businesses. Review the number of employees and their respective total financial packages. Employ part time staff where practical. Set targets for all staff to meet.
This is another major item of expenditure for most businesses. Where possible, try and re-negotiate rents or sub-let unwanted space.
Keep stock levels to a minimum but ensure that this does not prejudice the servicing of customers. Re-negotiate terms including sale or return terms.
8. SALES AND MARKETING
Review your sales and marketing strategy. Set targets for yourselves and marketing team and ensure that the targets are met.
Endeavour to re-negotiate loans with banks and other finance houses. Seek a moratorium on repayment of capital on condition that you continue to pay interest.
Review the terms you are receiving from your bank both in respect of annual charges, interest rates on credit balances and interest charges on overdrafts and other loans. Ensure that these are competitive by talking to competitors.
11. INSURANCE AND OTHER OVERHEADS
Review insurance and other overheads of the business in order to establish whether such services and facilities can be obtained from competitors at lower prices. Consider a different Telecom supplier as well as making telephone calls at off peak times.
Compare yourself with your competitors in order to establish how they are fairing.
Review your prices. Consider whether these can be increased to provide a greater profit or whether there might be resistance to an increase. Consider equally whether they can be reduced and whether you would still be able to make a profit, albeit a lesser profit.
14. PAYMENT OF BILLS
Negotiate a discount for prompt payment. If suppliers are not prepared to give a discount, ensure that you take the maximum amount of credit time available before payment of the bill is due. Remember that you should pay and be paid on time.
15. CREDIT CHECKS ON NEW CUSTOMERS
This is fairly inexpensive and can avoid good being lost to customers who either become insolvent or disappear.
16 TERMS AND CONDITIONS OF TRADE
Review your Terms and Conditions of Trade. Make sure that these are incorporated into the Contract by serving a copy on your customer or supplier at the start of the Contract. Ensure that your Terms and Conditions of Sale contain a properly worded Retention of Title Clause to retain title to goods until you are paid.
If cash flow is a problem, consider factoring your debts. This will create an additional expense but will nevertheless improve cash flow.
18. CVA, IVA AND ADMINISTRATION.
If all else fails, consider the possibility of entering into a Corporate Voluntary Arrangement (CVA) for companies or an Individual Voluntary Arrangement (IVA) for individuals. This is a way of achieving a composition arrangement with your creditors which is formalised by a Court Order and in respect of which your creditors cannot renege at a later date. If this fails, the last step before insolvency is to enter into an Administration Order whereby an Insolvency Practitioner is instructed to take over the running of the business in order to achieve a greater realisation of assets. Be aware that for a CVA, IVA or Administration Order, an Insolvency Practitioner needs to be instructed and the sooner he is instructed the better, if he is to have any prospect of saving the business.