Disaster averted: How to steer clear of the so called ‘business infection’

Simon Willmett, FD, Nucleus Commercial Finance 

Over the last year, the UK has seen an unprecedented number of companies go under. Not only did just shy of 6,000 retail stores disappear from our high-streets in 2017, but also Carillion, Britain’s second largest contractor, went into liquidation in January. House-hold name or independent venture, this ‘infection’ doesn’t make exception, as we have seen with some of the most iconic brands filing for administration in recent months. What this does show us is that, no matter the size and reputation of the business, the struggle to stay afloat is a challenge faced by all.

It is important to remember however, that although challenging, an unsteady economic climate does not necessarily equate to the ultimate failure of a company. There are preventative steps you can take to safeguard the health of your business, allowing you to nip potential signs of distress in the bud early, before the problem becomes unmanageable.

Plan ahead

Without a doubt, the single most important thing you can do, is to take responsibility for proactive financial planning. As a business owner, you will have ultimate sight of this, though collaboration with the wider leadership team is essential to inform your future planning and modelling. It is crucial that you understand the business vision as well as some of the more tangible goals and decisions made by the senior team.

Have a plan in place for both the short and long term and ensure you are aware of growth ambitions, any new hires planned, or anticipated uptick in business activity. Alterations in your business from increasing the stock count of a product, to expanding your team could tip the balance on your current finance provisions. No matter how small, these decisions could take months to pay off and involve up-front costs, so it is important you are prepared financially.

Grow your finances 

The UK’s cultural stiff upper-lip means that the use of external finance, even as a strategic business decision, is a taboo subject. The idea that relying on any means other than self-generated funds is thought to be perceived as a sign that your business is struggling is simply outdated.

Many businesses have quite dramatic peaks and troughs in cashflow for good reason. This could be seasonal variation, quarterly VAT bills or other large costs, or related to a discrepancy between the payment terms you hold your clients to, and those you are held to by your own suppliers. Recognising this will allow you to minimise the impact that this has on your business operations, planning and sales.

They key to getting it right is constantly holding yourself to question. Is there enough cash in the business? If so, how long for? If not, how soon will you need additional support? Understanding where you stand is crucial and will help you find the right finance partner, and loan structure, for your needs.

Take action

 So, what happens if the signs of distress become visible? As soon as these signs start to surface – it’s time to take action. From personal experience, I have witnessed a number of businesses face serious difficulties due to senior management teams losing control of the wheel – they just did not act quickly enough. In business, complacency simply is not a viable option.

The first big buzz word may sound obvious – profitability. Simply speaking, a business which is not profitable is at risk. If you are reliant solely on borrowed finance, your destiny is never truly in your own hands, and even if the business is profitable, be wary if this is not accompanied by positive cash flow – liquidity is important, and keep an eye on slipping margins.

Look out for warning signs, such as decreasing sales, change in product quality and staff turnover or profit decreasing year-on-year. These are all factors which, although may show themselves subtly at first, require fast action to set you back on the right track.

 If the business does fall into distress, it is of critical importance that you minute every single decision on a formal record, in line with compliance obligations. To assess the extent of the problem, you will need an up to date cash flow statement, and any recent monthly management accounts and projections. You should consult with your legal team and accountants immediately, to ensure that directors do not become personally exposed.

 To summarise: be ready to take advice when it is given, and prepared to make difficult decisions quickly and concisely and most importantly, take control. Be brave enough to really look under the surface of your business and understand your options. It’s not too late to avoid the business infection.

Simon Willmett, FD, Nucleus Commercial Finance 

Over the last year, the UK has seen an unprecedented number of companies go under. Not only did just shy of 6,000 retail stores disappear from our high-streets in 2017, but also Carillion, Britain’s second largest contractor, went into liquidation in January. House-hold name or independent venture, this ‘infection’ doesn’t make exception, as we have seen with some of the most iconic brands filing for administration in recent months. What this does show us is that, no matter the size and reputation of the business, the struggle to stay afloat is a challenge faced by all.

It is important to remember however, that although challenging, an unsteady economic climate does not necessarily equate to the ultimate failure of a company. There are preventative steps you can take to safeguard the health of your business, allowing you to nip potential signs of distress in the bud early, before the problem becomes unmanageable.

Plan ahead

Without a doubt, the single most important thing you can do, is to take responsibility for proactive financial planning. As a business owner, you will have ultimate sight of this, though collaboration with the wider leadership team is essential to inform your future planning and modelling. It is crucial that you understand the business vision as well as some of the more tangible goals and decisions made by the senior team.

Have a plan in place for both the short and long term and ensure you are aware of growth ambitions, any new hires planned, or anticipated uptick in business activity. Alterations in your business from increasing the stock count of a product, to expanding your team could tip the balance on your current finance provisions. No matter how small, these decisions could take months to pay off and involve up-front costs, so it is important you are prepared financially.

Grow your finances 

The UK’s cultural stiff upper-lip means that the use of external finance, even as a strategic business decision, is a taboo subject. The idea that relying on any means other than self-generated funds is thought to be perceived as a sign that your business is struggling is simply outdated.

Many businesses have quite dramatic peaks and troughs in cashflow for good reason. This could be seasonal variation, quarterly VAT bills or other large costs, or related to a discrepancy between the payment terms you hold your clients to, and those you are held to by your own suppliers. Recognising this will allow you to minimise the impact that this has on your business operations, planning and sales.

They key to getting it right is constantly holding yourself to question. Is there enough cash in the business? If so, how long for? If not, how soon will you need additional support? Understanding where you stand is crucial and will help you find the right finance partner, and loan structure, for your needs.

Take action

 So, what happens if the signs of distress become visible? As soon as these signs start to surface – it’s time to take action. From personal experience, I have witnessed a number of businesses face serious difficulties due to senior management teams losing control of the wheel – they just did not act quickly enough. In business, complacency simply is not a viable option.

The first big buzz word may sound obvious – profitability. Simply speaking, a business which is not profitable is at risk. If you are reliant solely on borrowed finance, your destiny is never truly in your own hands, and even if the business is profitable, be wary if this is not accompanied by positive cash flow – liquidity is important, and keep an eye on slipping margins.

Look out for warning signs, such as decreasing sales, change in product quality and staff turnover or profit decreasing year-on-year. These are all factors which, although may show themselves subtly at first, require fast action to set you back on the right track.

 If the business does fall into distress, it is of critical importance that you minute every single decision on a formal record, in line with compliance obligations. To assess the extent of the problem, you will need an up to date cash flow statement, and any recent monthly management accounts and projections. You should consult with your legal team and accountants immediately, to ensure that directors do not become personally exposed.

 To summarise: be ready to take advice when it is given, and prepared to make difficult decisions quickly and concisely and most importantly, take control. Be brave enough to really look under the surface of your business and understand your options. It’s not too late to avoid the business infection.