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Venturn Top tips for cash flow management.

There's only way to run your cash flow when you are short of funds and under pressure, you have to visit every piece of expenditure and question if it truly required.

There are many pitfalls, so here our top tips to running your cash flow in a distressed environment and making sure that your ability to deliver your products and services doesn’t grind to a halt.

  • Tip 1 : Construct a 13 week cash flow forecast
    The process of constructing a cash flow forecast will help you to identify opportunities to improve your cash flow, and understand the risks. If you use invoice discounting, you’ll also need to forecast your sales, and Debtor balance, and disapprovals as these can dramatically affect your headroom and cash availability. You may also need to forecast your key creditor balances to ensure that future supplier deliveries can be supported by your suggested payment plans.
  • Tip 2 : Have a plan
    Figures are only a guide, and there must be a good story and plan behind the figures that you, your lenders, shareholders, and your creditors can believe. The plan needs to justify how and why things will improve. Buying time isn’t enough, you need to fix the underlying problems that causes the cash crisis in the first place. If the plan lacks credibility and they don't believe it, you're in trouble.
  • Tip 3 : Cash injection to buy time
    You may require a cash bridge to deliver the plan so you may need to secure a cash injection from your existing lenders, shareholders or creditors, or new lenders or investors. It not easy to do, but it can be achieved if the plan is good, but you may need specialist help. You should however only raise new funds if you are certain that the plan will work. There’s no point in buying time without a turnaround plan as you could be simply delaying the inevitable and making the situation worse.
  • Tip 4 : Are you are solvent?
    If your cash flow problems are severe and things are getting tough, then you should take advice from an Insolvency Practitioner and possibly an Insolvency Lawyer. This phase is referred to as ‘twilight trading’ and there are many things that you should do and should not do during this period. It doesn't follow that you are going to go into Administration or Liquidation, it merely means that there is risk of insolvency, and you need to consider your options, and know your responsibilities as Company Directors. We are happy to help guide you through this process and introduce you to our trusted partners.
  • Tip 5 : Maximise your Receivables
    It sounds obvious, but sometimes you need a near extinction level event to kick you into action. Every business that we go into has the ability to collect cash earlier. You need to re-visit every Debtor and question every invoice, ask for payments earlier, pull in all your favours, chase every overdue account and press harder, issue notice of legal proceedings and start the legal process.
  • Tip 6 : Minimise your Payments
    This is the hard part, but you must talk to your creditors. Having a plan is essential, and you should be prepared to share your cash flow forecast with them. If they trust you and believe the plan, they are likely to support you. You’ll have to make tough choices and prioritise operational creditors that enable you to deliver future sales. You should also visit all other payments, see if you can defer payment on your HP leases, cancel Direct Debits and Standing Orders. If things are really bad, you may need to ask your employees to defer some of their pay. All of this can be achieved, but you ought to get help from an experienced Turnaround Practitioner who has been there before.
  • Tip 7 : Talk to your bank
    You must talk to your bank and keep them informed. The last thing that a bank wants is a surprise as it often destroys their trust in the Directors. Put your plan to them as soon as you have it. You should have a clear view of what you are doing and want you require from your bank. This may be for continued support, an increase in your facility or an overlend, or a capital payment holiday or interest holiday on loans. Look at things from your bank’s perspective and you should be able to judge what kind of support you are likely to receive. Your bank may request an Independent Business Review (or IBR), for a second opinion on your plans. These are usually conducted by Business Recovery and Insolvency departments of the accountancy firms who we know well. We ourselves are also asked to create IBR’s so if you need some assistance on this process, we would be pleased to hear from you.

If things are very difficult and there is a real risk of insolvency, you should seek professional advice as you can't continue to accept services from your suppliers and increase their exposure. To do this, could be deemed as 'wrongful trading' and those creditors could make life very difficult for you should things fail. ‘Twilight Trading’ is a complex area and balancing your responsibilities to your own objectives, you shareholder and creditors is not easy. Make sure that you get experienced assistance from a turnaround professional. We would be pleased to hear from you..

Further reading

Stephen Moon, Venturn Ltd. December 2010

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