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Dear James,
Welcome to the regular newsletter from vfdnet - Game Plans
for Growth. Each newsletter features one aspect of how to
improve your business, providing some tips and prompts for the SME Business
Owner.
This month we focus on How do you Manage Recovery?
We hope that you find this newsletter helpful - please
forward this to other Business Owners or Managers who might also benefit
from it.
Kind Regards
James
Many businesses will sail 'close to the wire' on occasions
as circumstances don't always turn out as expected. However what is
the difference between this and trading illegally? What are the
typical warning signs that the business owner should watch out for?
How can owners avoid the pitfalls by learning from other peoples experiences?
Over 50% of companies fail within 2 years of starting and
only 10% of companies last more than 5 years. How can you help ensure
that your business is one of the few successful ones?
Business owners and Directors have serious responsibilities
towards shareholders, employees, customers, organisations that have a
vested interest in the business such as banks and other trading
partners (collectively know as stakeholders) and these come into sharp
focus when a business sails 'close to the wind'.
Limited company status normally means that shareholders have
their liability capped according to what they have invested in the business
by way of share capital. However if the shareholder / Director is
found guilty of 'trading insolvently' or 'trading fraudulently' then the
courts may well recover a Director's personal assets to offset the
company liabilities. This is one of the serious situations when the
'corporate veil' can be stripped away!
In order to limit exposure to such a situation,
the director needs to consider carefully whether the situation will
improve or whether the business needs to be 'put down'. The line
between a business being very cash stretched and trading illegally is a
very fine one. The owners and directors need to carefully
asses the short and medium term cashflow before arriving at the
conclusion as to whether there is 'light at the end of the tunnel' or not.
So what are the typical warning signs that you need to
take notice of? Apart from the symptom of 'lack of cash' here are our
top 10 signs:
1. Increase in staff turnover
2. Losing a key customer account or a
significant bad debt
3. Sales orders rising faster than you can
deliver
4. Waiting longer for payments from customers
5. Unrealistic assets on the Balance Sheet
6. Increasing stock levels or increasing
redundant stock
7. Cutting prices to chase business
8. Rising debts at a time of slowing growth
9. Owners not admitting the truth
10. It's not fun anymore!
Many business owners have found that by heeding these 'early
warning signs' and seeking help at an early stage, that they have
successfully managed their business recovery. vfdnet FDs are
experienced in moving into these situations and providing business owners
with dependable advice at these critical moments. We have extensive experience
of preparing cashflows and business plans and making successful approaches
to Banks and other funders. In particular we offer a one day
'helicopter view' of the business - reviewing all information and giving a
verbal end of day report to the business owner advising the way forward.
How do business owners learn from other peoples
situations? We have several FDs currently involved in recovery
situations and here is a client case study from a technology business Mark
Tracey has been working with:
"Mark joined the business in mid 2004 to improve our
financial processes, reporting and forecasting. Of particular concern
was the cash flow management, which was, up to Mark's arrival, ad hoc and
unfocussed. Mark's clear and decisive analysis determined that the
business had been trading insolvently and it was recommended to the Board
that professional insolvency advice be sought. Having placed the
business in the hands of a high calibre liquidator in October 2004, Mark
was integral to the team that was to 're-phoenix' the business on the back
of a sale and purchase agreement of the old company's assets. I am
delighted to say that the business has since flourished and under the
continued and professional financial stewardship from Mark has traded
profitably in the past 2 quarters and is in a sound financial
position. Mark continues to drive the financial strategy of the
business and is core to the management team and successful realisation of
the business in the best interest of our investors".
Dave Cole - CEO of IPV Limited, Cambridge
Mark works as a part time FD in this business and the
re-phoenixing of the business involved the injection of £750k of new funds.
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