Ten top tips on surviving the credit crunch
1 prepare or update your business plan – yes this can be tedious but all business managers need to understand where they make or lose money and need to look ahead at different scenarios, like what changes would be needed if sales were to drop, say, 30%. Most importantly, more businesses will need this information to optimise cashflow and maintain reasonable headroom within agreed facilities.
2 maintain up to date management information - including monthly KPIs and management accounts, and monitor these against the business plan. Running a business is a bit like driving a car; if you do not know where you are it isn’t likely that you will arrive at your planned destination.
3 cut costs as soon as you can – if you need to rebalance expenditure to match reduced revenue, do so decisively; lots of small adjustments can feel like death by a thousand cuts and is slower to take effect. If necessary, take advantage of the redundancy payment loan scheme operated by the government.
4 focus on cashflow – if necessary at the expense of profit. This is a subject on its own but consider strengthening credit control, reduce stock levels, sell surplus assets, negotiate extended credit terms, including so called “time to pay agreements” with HM Revenue & Customs. Remember turnover is vanity, profit is sanity and cash is king.
5 check your terms of trade – many businesses have relatively little experience of their customers becoming insolvent. In a sharp recession this risk will become a more frequent part of doing business and needs to be built into pricing and terms of trade, including provision to charge interest on late payments, termination of contracts, taking early recovery action and claiming a lien or retention of title to goods. Obtain up to date credit reports on major customers.
6 take your chances – when you get them. For every business that fails there will be customers, key personnel and other assets available to those that survive. Register on IP-Bid.com, the UK’s online insolvency market place, to receive email updates and opportunities.
7 buy assets or take security – if you are thinking of injecting additional working capital to pay pressing creditors, especially if your bank has declined additional facilities. But there are a number of potential pitfalls you will need to navigate, so take specialist advice first.
8 be able to justify your decisions – in particular if the company is insolvent or there is any doubt that the business can trade out of its difficulties. The best way is to take advice and minute decisions at regular board meetings.
9 remain in control – yes it is true that when a company becomes insolvent the directors need to act in the interests of creditors rather than shareholders but ordinarily that does not give creditors the right to dictate terms, and that includes your bank! Choose your own advisors so you can be confident that they will act in your interests.To quote from our book, ‘Corporate Insolvency’, “They say the spectator sees more of the game. This is true in insolvency. The warning signs are more obvious to a casual observer than they will be to you. When you are in the thick of it, punch drunk from fending off creditors and juggling your budget, what an outsider would see as a big problem may appear quite normal to you.” Actually, it is not normal to constantly get chasing phone calls to make payments, cheques bouncing at the bank, being on stop with suppliers, or for the bank to insist on an independent review. If this happens, take matters into your own hands.
10 don’t suffer sleepless nights – because of business problems. If in doubt take advice from your accountant, lawyer or business advisor. If you need specialist insolvency advice they will tell you. Recent case law has clarified that as long as directors act in accordance with professional advice they should avoid personal liability.
There are usually a number of constructive options available, especially when you take early advice. This may be the first time you have faced being unable to pay creditors but insolvency practitioners see this type of situation every day. Even if the company cannot be saved, often the business can.
Call our business rescue & insolvency hotline on 0800 085 5070.