Ten tips for the credit crunch
23rd July 2008Businesses across the south can do more to protect themselves from the impact of the worst credit crunch in recent memory.
Andrew Edmonds, a director in the Southampton office, has a ten-point plan to help local firms trade through leaner times.
The Southampton-based assurance and business services director said: "The key message here is that your business may fail if it runs out of cash, even if it's profitable. There are, however, ways of protecting and preserving your cash position.
"It's just a question of focusing on simple working capital management techniques - and remembering that cash is king.
"Now, more than ever, it is also vital that owners keep their bank ‘in the loop' at all times.
"In the past, for example, a business might ring the bank at the 11th hour and be granted an emergency overdraft to pay the wages for the staff for that particular month.
"Twelve months ago, that would have been alright, although far from ideal. Now, though, the bank is likely to refuse, or ask for personal guarantees from directors, such as the family house as security.
"Until recently, easy, cheap credit has significantly weakened the message of how valuable and limited cash can be.
There's a great line from Little House on the Prairie, the old TV series about a hard-working homesteader trying to make a living for his family on a small farm in Minnesota, that owner managers would do well to remind themselves of.
"Charles Ingalls tells one of the townsfolk: ‘It's all about cash in the barrel'. His quote has never been more prescient in what is the worst cash drought in recent memory.
"The tips below are by no means exhaustive, but they give some ideas for most businesses to consider.
"Those businesses able to steer a steady course through uncertain times are likely to emerge stronger and more profitable, with an excellent commercial advantage."
Top ten tips for the credit crunch
1. The bank account. Monitor the account daily, keep within covenants and ensure the appropriate facilities are in place, well in advance of when they are needed.
2. Credit control. Enforce credit terms, consider discontinuing with clients who haven't paid and tighten up invoice timing.
3. Information. Ensure regular management accounts and cashflow forecasts are available and accurate. Be thorough with business planning.
4. Communication. Keep in regular contact with creditors and the bank, including advance warning of issues. This is no time to be an ostrich.
5. Timely billing. Avoid delays, ensure accuracy and agree amounts in advance. Take a hard look at the time taken between the provision of goods or services and the raising of a bill.
6. Defer capital expenditure. For example, do you need to replace the fleet of vehicles? Why not lease or contract hire? Could you generate cash from selling surplus machinery?
7. Freehold property. Consider sale and leaseback, or use the space more efficiently. Could excess space be sub-let?
8. Leasehold property. Think about relocation if there is a break point as a move could release cash through various ways, such as lower rent, lease incentives or a rent-free period.
9. Alternative finance. Look at other sources of finance, such as confidential invoice discounting, asset finance and operating leases.
10. Review remuneration packages. Try other benefits, such as share options, deferred bonuses or an equity stake.
For further information contact:
Press Office:
Kate Harrison / Layisha Laypang, 020 7131 4228 / 4550
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Note to editors
Smith & Williamson is an independent professional and financial services group employing over 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Bristol, Dublin, Glasgow, Guildford, Maidstone, Salisbury, Southampton and Worcester.
Smith & Williamson Limited
