Staying Afloat
These are challenging times for SMEs. Falling property values, rising costs and a consumer market feeling the effects of the credit crunch and persistent inflation are all contributing to one of the most difficult trading times over the past decade. As the credit crunch continues to make its presence felt and takes hold of the UK economy, SMEs face a challenging time. With profit margins getting squeezed and sales harder to secure, how can business owners and directors make sure they continue to trade and stay afloat? Proactively managing cash flow, including VAT and PAYE arrears, can help to ease this pressure to allow management the time to seek the opportunities that will safeguard the businesses future success.
So what sets apart those businesses that will ride the storm and go onto achieve greater success? Despite the doom and gloom, a well managed business with a quality product or service to sell can succeed. However, when economic pressures threaten the performance and sustainability of a business, it is crucial management are on the look out for the warning signs of a business in trouble. These could include:
- Not paying to creditors terms
- Not paying to creditors terms
- A lack of cost controls
- Increasing overdraft
- Deferred or delayed Crown payments
- Unhealthy dependence on a small number of customers or suppliers
- Production disruptions or delays
- Poor staff retention
- Loss of key customers
- Disputes among directors and senior managers
- Unable to get new or extended credit
At different times most businesses will experience one or other of these factors. But a combination of two or more over a sustained period is usually a signal that something is going wrong. Managers, when confronted with these challenges, can spread themselves too thinly, ‘fire fighting' in a bid to resolve the company's current predicament. This can result in unresolved issues escalating and cause the stakeholders of the business, including banks and other funders, to become uncertain about their position.
Difficult as it is, Management must try and take a step back. There are immediate actions that can be taken to alleviate some of the pressure. Firstly, cash flow controls need to be tightened and if an arrangement with a funder exists, be it a bank or an asset-based lender, it is far better to confront financial performance issues rather than burying you head until you are unable to pay them. It is also wise to gain advice, perhaps from a turnaround professional. This is often less daunting than approaching a funding partner for advice, and they will be able to go through the options available to the business and negotiate on your behalf if necessary.
Each business is different, but options could include; negotiating a new funding package, installing an interim turnaround manager, providing managerial support to the company's existing finance function, compiling financial documents on the company's behalf or even rescheduling mounting VAT or PAYE payments. We have many years experience working in such a way including working with the Crown to help troubled businesses restructure VAT and PAYE payments through a time-to-pay arrangement. By ringfencing this Crown debt, it gives managers of otherwise viable businesses some breathing space.
The aim of a turnaround strategy is to free business owners to concentrate on the bigger picture. Often companies fail because they hit a stumbling block, which results in managers spending all of their time liaising with disgruntled creditors and funders. Once a turnaround programme is implemented, the owner's focus is entirely on the future growth and success of the business.