Business in Crisis – A Note to Company Directors running out of cash

Step 1

Information gathering – understand the current position by having the most up to date management accounts possible. Produce a schedule of all the Lenders the business borrows from, how much is owed, monthly repayments and payment dates. Make sure the Aged Debtor and Creditor reports are correct.

Step 2

Forecast – If the situation is urgent just concentrate on a 13-week cash flow forecast.

Ultimately you will need to take a view on when business will improve and you expect to be able to start to make good any forbearance already agreed, or to be sought.

The above should give you a good idea of the condition of the business and the scale of the problem in a form that you can share. Be mindful that Lenders don’t want to hear a tale of woe – they want to hear your plans and proposals.

You are probably going to need to speak to your Bank, and it is more likely to support you, if others are helping to take the strain.

Step 3

Approach asset finance lenders to seek a repayment holiday or at least a period where only interest is covered. Speak to key suppliers, share the problem, seek longer terms where possible or otherwise agree a plan to pay them over a period.

Contact slow paying or overdue customers to ask for payment. Be realistic, if they cannot afford to pay, consider if stage payments are better than nothing; at least get an honest understanding of when you should expect to be paid. Consider approaching customers still within terms, request early payment or offer a discount for early payment.

Call Crown creditors to seek to defer payments but always be realistic – do not over promise.

Step 4

Now adjust the forecasts in light of what has been agreed in Step 3 and hopefully things already look a bit better. However, if you still need additional help from the Bank, make sure they have your latest Statutory Accounts, latest Management Accounts and Forecasts (with your assumptions) and based on this information, seek an appropriate level of support.

Expect to be challenged on the steps you have taken to mitigate the position, to what extent you have reduced your drawings, injected personal/family funds (if appropriate) and whether any security is being offered to support the request.

If not already given, you may be asked to provide a personal guarantee.  Give this serious thought before the meeting and discuss it with the family first.

It can be helpful to involve your accountant or business advisor in preparing/reviewing your proposal prior to submitting it to the Bank.

While a face-to-face meeting is unlikely in these times, try to arrange a Zoom call (or similar) and consider including others involved in the finance function and your accountant /advisor.