Riding Out the Recession

Business Recovery and Cash Flow Management

Brian Denton iems ltd

Business RecoveryIntroduction

• Why do businesses start?

Business Recovery Introduction

• Why do businesses start?• It is a strength to recognise that external help

is needed, not a weakness.

Business Recovery Introduction

• Why do businesses start?• It is a strength to recognise that external help

is needed, not a weakness.• Why do companies get into difficulty?

Business Recovery Introduction

• Why do businesses start?• It is a strength to recognise that external help

is needed, not a weakness.• Why do companies get into difficulty?• The key to successful business recovery is to

act early – as soon as a problem is identified.

Business RecoveryThe Process

• Initial assessment of the companies position.

Business RecoveryThe process

• Initial assessment of the companies position.• Analysis of the company’s present financial

position.

Business RecoveryThe process

• Initial assessment of the company’s position.• Analysis of the company’s present financial

position.• Develop an understanding of the nature of the

problem/s that the company has and the consequences.

Business RecoveryThe process

• Initial assessment of the company’s position.• Analysis of the company’s present financial

position.• Develop an understanding of the nature of the

problem/s that the company has and the consequences.

• Develop a plan to deal with the problem/s and its consequences.

Business RecoveryThe process

• Initial assessment of the company’s position.• Analysis of the company’s present financial position.• Develop an understanding of the nature of the

problem/s that the company has and the consequences.

• Develop a plan to deal with the problem/s and its consequences.

• Prepare a financial plan comprising P&L, Cash Flow & Balance Sheet, phased by month.

Business RecoveryThe process

Breakeven Calculation & Price

£Sales 100000Variable Costs 65,000Gross Profit 35,000Gross Margin 35%Fixed Costs 25000Profit 10,000

Breakeven Sales 71,429 i.e. Fixed Costs x 10035

Business RecoveryThe process

Breakeven Calculation & Price

10% Price£ Increase

Sales 100000 110000Variable Costs 65,000 65,000Gross Profit 35,000 45,000Gross Margin 35% 41%Fixed Costs 25000 25000Profit 10,000 20,000

Breakeven Sales 71,429 61,111

Sell Less/More -24390for £10K Profit

22%

Business RecoveryThe process

Breakeven Calculation & Price

10% Price 10% Price£ Increase Decrease

Sales 100000 110000 90000Variable Costs 65,000 65,000 65,000Gross Profit 35,000 45,000 25,000Gross Margin 35% 41% 28%Fixed Costs 25000 25000 25000Profit 10,000 20,000 0

Breakeven Sales 71,429 61,111 90,000

Sell Less/More -24390 35714for £10K Profit

22% 40%

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts.• Invoice on the same day as delivery.

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts.• Invoice on the same day as delivery.• Reduce or eliminate credit given to customers.

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts.• Invoice on the same day as delivery.• Reduce or eliminate credit given to customers.• Liquidate surplus stock and other assets.

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts.• Invoice on the same day as delivery.• Reduce or eliminate credit given to customers.• Liquidate surplus stock and other assets.• Extend credit taken from suppliers. Renegotiate

terms & where possible extend credit limits.

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts.• Invoice on the same day as delivery.• Reduce or eliminate credit given to customers.• Liquidate surplus stock and other assets.• Extend credit taken from suppliers.• Defer HM Revenue & Customs payments by

agreement.

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts.• Invoice on the same day as delivery.• Reduce or eliminate credit given to customers.• Liquidate surplus stock and other assets.• Extend credit taken from suppliers.• Defer HM Revenue & Customs payments by

agreement.• Consider Factoring or invoice discounting.

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts.• Invoice on the same day as delivery.• Reduce or eliminate credit given to customers.• Liquidate surplus stock and other assets.• Extend credit taken from suppliers.• Defer HM Revenue & Customs payments by

agreement.• Consider Factoring or invoice discounting.• Sell and lease back essential assets.

Business RecoveryManaging Cash Flow

• Collect outstanding customer debts.• Invoice on the same day as delivery.• Reduce or eliminate credit given to customers.• Liquidate surplus stock and other assets.• Extend credit taken from suppliers.• Defer HM Revenue & Customs payments by agreement.• Consider Factoring or invoice discounting.• Sell and lease back essential assets.• Reduce overheads and direct costs wherever possible.

Business RecoveryManaging Cash Flow

CASH FLOW FORECAST

Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

£ £ £ £ £

RECEIPTS

Invoiced Sales 3,600 6,013 5,826 3,781 1,901

Loan Capital 0 0 0 0 50,000

3,600 6,013 5,826 3,781 51,901

PAYMENTS

Invoiced Costs 416 476 2,214 1,122 11,185

Labour 1,774 1,774 0 0 2,496

Loan Payments 3,298 3,298 3,298 2,667 2,667

Overdraft Interest 187 195 200 204 114

PAYE/NI 0 887 887 0 0

VAT 0 0 0 198 0

5,675 6,630 6,599 4,191 16,462

NET CASH FLOW -2,075 -617 -773 -410 35,439

OPENING BANK -27,000 -29,075 -29,692 -30,465 -30,875

CLOSING BANK -29,075 -29,692 -30,465 -30,875 4,564

TOTAL OVERDRAFT FACILITY 27,000 27,000 27,000 27,000 27,000

Business RecoveryPrevent a Problem Turning into a Crisis

• Have a business improvement action plan in place and act upon it

Business RecoveryPrevent a Problem Turning into a Crisis

• Have a business improvement action plan in place and act upon it

• Prepare a financial forecast / budget

Business RecoveryPrevent a Problem Turning into a Crisis

• Have a business improvement action plan in place and act upon it

• Prepare a financial forecast / budget• Keep management accounts up to date on

Sage / Quick Books etc

Business RecoveryPrevent a Problem Turning into a Crisis

• Have a business improvement action plan in place and act upon it

• Prepare a financial forecast / budget• Keep management accounts up to date on

Sage / Quick Books etc• Compare actual performance with budget

Business RecoveryPrevent a Problem Turning into a Crisis

• Have a business improvement action plan in place and act upon it

• Prepare a financial forecast / budget• Keep management accounts up to date on

Sage / Quick Books etc• Compare actual performance with budget• Spend time monthly analysing your

management accounts

Business RecoveryPrevent a Problem Turning into a Crisis

• Have a business improvement action plan in place and act upon it

• Prepare a financial forecast / budget• Keep management accounts up to date on Sage /

Quick Books etc• Compare actual performance with budget• Spend time monthly analysing your management

accounts• Address areas of under performance

Business RecoveryPrevent a Problem Turning into a Crisis

• Have a business improvement action plan in place and act upon it

• Prepare a financial forecast / budget• Keep management accounts up to date on Sage /

Quick Books etc• Compare actual performance with budget• Spend time monthly analysing your management

accounts• Address areas of under performance• Don’t ignore problems, they are not likely to go away

Business RecoveryPrevent a Problem Turning into a Crisis

• Have a business improvement action plan in place and act upon it

• Prepare a financial forecast / budget• Keep management accounts up to date on Sage / Quick

Books etc• Compare actual performance with budget• Spend time monthly analysing your management

accounts• Address areas of under performance• Don’t ignore problems, they are not likely to go away• If in doubt, seek external advice from your bank /

accountant / Business Link