The oncoming recession is going to test many UK businesses. Nick O’Reilly, President of R3 and Client Partner at Vantis Business Recovery Services (BRS), a division of Vantis, the UK accounting, tax and business advisory group, offers some advice to help managers cope with tough trading conditions.
“There is no doubt that UK plc is struggling in the current climate. However, there are still options available for businesses that find themselves in difficulty.
“The biggest headache for most managers and financial directors right now, is maintaining a healthy cash flow. Analyse the cash flow forecast and identify where savings can be made; can you accelerate cash receipts by offering early payment discounts? Could you talk to your key suppliers to seek pay when paid arrangements? Or renegotiate rent payment terms with the landlord? Can the business be restructured to reduce human capital costs? Bolstering working capital inevitably involves making tough decisions, but it is vital these decisions are made quickly to safeguard the business as a whole.
“Secondly, make sure the company’s balance sheet is working hard for the business. There remains a number of asset finance packages available that allow managers to free up capital previously tied up in assets, whether property, machinery, tools, vehicles or debtors. In the aftermath of the banking crisis, these alternative methods of finance have become more common, as institutions prefer to lend according to the shape of a business’ balance sheet. However, the lending criteria are more stringent and there is certainly more re-finance activity as opposed to new lending, making the sale and leaseback model popular.
“What is important is that there are still institutions willing to lend, but directors must be prepared with robust forecasts and evidence of a strong management team to improve their chances of re-financing successfully. Critically review the business and its operations; are there any skill gaps in the management that could be filled by an interim manager? Has the portfolio of products or services been reviewed to make it more recession proof? Are accounts up to date and audit proof?
“Businesses applying for re-finance today can expect tougher and more regular valuations, as well as needing to lay down a greater deposit. Some lenders are also looking for additional guarantees from proprietors, or gearing up on other assets and, in some cases, where the asset valuation has been reduced but more funds are required, we are seeing the creative use of the small firms loan guarantee scheme to bridge this equity gap.
“However, with careful preparation and by getting the right advice early on, it is very possible for an otherwise healthy business to make it through a tough economic climate in one piece. The key? Act now!”
Top 5 tips
- Seize control of cash flow
- Make the most of the assets on the balance sheet
- Seek advice from your accountant or a corporate recovery adviser early on
- Strategically review the business’ operations; identify areas for sustainable growth
- Identify and plug any skill gaps in the management team.
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