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Business Development & Marketing Cash Flow & Forecasting General Rescue, Restructuring & Recovery

Nurture your key relationships if you want to have a future after current crisis

key relationships are important for business survivalIt may seem premature to talk about what happens when the Coronavirus pandemic is over but SMEs need to think ahead and nurture those key relationships needed to ensure their business has a future.
Many of you have had to temporarily close your business and furlough staff due to Government restrictions introduced to try to slow the spread of the virus and many or you have seen your income plummet or cease altogether, with a devastating impact on your cash flow.
According to behavioural scientists it is natural to behave cautiously, even timidly, in the face of a threat, in direct proportion to its magnitude and to what is known about it. But amid the daily deluge of media updates, it is important to remember that we will tend to exaggerate the risk so the threat looms large in our minds.
So, it is perhaps natural to invoke a so-called “bunker” mentality in which self-protection overrides all else.
But as a business owner, no matter how dire the current situation, it is important you try to maintain a sense of perspective and remind yourselves that eventually some form of “normality” will return at which point you will want to be able to return to business profitability.
An essential element of this is what you do now, and key to it will be your relationship with employees, customers and suppliers.
In previous pandemic-related blogs I have talked about maintaining regular communication with staff, somewhat like the government’s daily briefings from No 10 to keep us all informed. This communication is key whether you have been fortunate enough to be able to carry on with staff working remotely, or whether you have had to take advantage of the Government’s furlough scheme for the time being.
Similarly, it is critical to maintain a level of marketing to stay in contact with customers and clients.  They may not be placing orders now, but staying in close touch with them, demonstrating concern for their interests and wellbeing, and discussing the future will help prepare for it.
In the same way, understanding the changing needs of customers may have helped you pivot, as those like some restaurants who now provide a take-away service and offer meal deliveries. This engagement will ensure your business pick up quickly when restrictions are eased.
Another of the key relationships that you will need to nurture is that with your suppliers. You will need them if you are to remain in business where non-payment during the lock down may have been necessary if you yourself haven’t been paid but ignoring them won’t be easily forgiven.
There is a salutary lesson in the action recently taken by New Look, whose CEO last week wrote to all suppliers suspending payments to suppliers for existing stock “indefinitely, cancelling orders for its Spring and Summer clothing lines and saying it won’t pay costs towards them.
In fairness, the company had been in difficulties as a High Street retailer due to the changing nature of customer shopping habits in the previous two years and had closed many of its branches.
However, the news was devastating to its suppliers who received such a brutal message, one of whom is reported as saying the action would “devastate smaller companies down the supply chain at a time when they need help the most”. There appears to have been no recognition or understanding in the letter that suppliers would be facing cash flow issues of their own.
A little empathy would not have gone amiss when communicating such a non-payment message to suppliers who will need a level of understanding to show how important they really are despite being unable to pay them and especially when wanting to do business with them again in the future.
Perhaps you could engage with them by discussing ways to limit the damage, either by offering staged payments, if you as a business can afford it, or by reassuring existing suppliers that you value them and will continue to work with them as the restrictions ease and life gets back to normal.
No matter how focused you are on your own concerns and worries at the moment, and I am by no means seeking to minimise their significance, you should also remember that if you don’t nurture your key relationships now you could put your eventual business recovery in jeopardy.
Help is available for SMEs dealing with the pandemic at:
https://www.onlineturnaroundguru.com/coronavirus-sme-support

Categories
Accounting & Bookkeeping General Rescue, Restructuring & Recovery Turnaround

How many suppliers does your business really need?

In the course of our work in helping SMEs to become more efficient and targeted, we often come across businesses that have a large number of suppliers.
Keeping track of ordering, invoicing and payment across many suppliers can be a needless burden on the administrative system. Especially when reconciling your statements with theirs.
It also makes it more difficult for the business to understand and manage the risks that may be hidden in its supply chain.
A typical example of a business with too many suppliers is the building company that goes to a number of different builders’ merchants for the same materials. It may be that at some point they have either found a supplier that was cheaper or that they had used another supplier to source materials not available with their usual one.
Over time, the list of suppliers grows and grows while the original reason for using them no longer applies.
While it is important for all businesses to keep their costs down and therefore to shop around for the best deal, the time spent ‘shopping round’ is a hidden cost that contributes to inefficiency by adding to the administrative burden.
If on the other hand a periodic review of prices is carried out and an approved supplier list is used, then the hidden cost of ‘shopping round’ and the administrative burden of managing lots of purchase ledger accounts can be significantly reduced.
It may of course be that there is an advantage to having back up suppliers but great deals can be achieved with a discount on price and high levels of service where the supplier has the “loyalty value” of your regular, longer term custom.

Categories
Business Development & Marketing Cash Flow & Forecasting Finance General Insolvency Rescue, Restructuring & Recovery Turnaround

SME – Supplier relationships should be nurtured

If a business is to survive it needs to manage relationships with both its own suppliers as well as with customers. It also needs to consider the risk of being dependent on a supplier or customer.
The revelations about suppliers to Tesco and now Premier Foods are a graphic illustration of the danger of relying too heavily on one customer. A dominant customer can exert control over prices and margins and as in the case of Tesco, demand a raft of marketing support fees.
There is a point when the relationship can become no longer economically viable but if you are not prepared it can be impossible to terminate without putting your own business’ survival in jeopardy.
Many SMEs in particular, like farmers, have been forced out of business by not being able to say “no” to the demands of their supermarket chain customers. Research by accountancy firm Moore Stephens has recently revealed that 146 food producers have become insolvent this year, an increase from 114 last year, in part because of supermarket price wars.
It is not only an issue for food producers and superstore supply chains. Some years ago the Ford motor manufacturer put similar downward pressure on its suppliers, many of whom went bust. In the end Ford had to buy some out of insolvency in order to ensure continuity of supply and its own survival.
The lesson is that SMEs should not only avoid becoming locked into supplying only one customer, but also to learn to say “no” to pressure.
No business can exist in complete isolation. If businesses treat others as fairly as they expect to be treated themselves, then ultimately everyone in the supply chain can survive and benefit.

Categories
Banks, Lenders & Investors General Insolvency Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Zombie companies have a number of options for achieving growth

Zombie companies will at some time need to confront three fundamental problems before they can achieve growth: 1. how to fund growth; 2. how to repay debt; and 3. how to service interest when rates rise.
Provided that a zombie company can generate profits on an EBITDA basis (earnings before interest, taxes, depreciation, and amortization), it has a number of options for resolving these problems as a pre-requisite for growth.
Options include negotiating a partial debt write-off, a pre-pack sale via Administration or a Company Voluntary Arrangement (CVA).
From the suppliers’ viewpoint a growing business offers the prospect of increased profits from increased supplies. From the existing lenders’ viewpoint profitable growth means that non-performing debts can be repaid. From a new investor’s viewpoint, new money can be used to fund growth rather than replace existing debt. From the company’s viewpoint growth inspires confidence in the future prospects of the business. 
Given the benefits, it makes sense for zombie companies to get help from restructuring experts who are familiar with these options.

Categories
Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Business Survival Depends on Stakeholder Co-operation and Collaboration

The support and co-operation of its stakeholders can be crucial to the success or failure of the efforts by a business in difficulty to restructure and survive.
Stakeholders are all those people who have an interest in the business and are likely to be affected by its activities and most crucially by its failure, and they include shareholders, investors, creditors, the bank, suppliers, landlords, employees (and their union representatives) and customers or clients.
Plainly, when a business is in difficulty and has called in a rescue adviser to review its activities, costs, business model and viability, any actions it may need to take as a result will be more likely to succeed if its stakeholders both understand the situation and support the proposed solutions.
While there is one key interest that all hold in common, which is that all have an interest in the business surviving if they want to continue to receive income from it, it is probable that the interests of some stakeholders will conflict with those of others.
Employees will be most concerned about keeping their jobs and their co-operation in any restructuring is likely to depend on whether they feel the management is considering their concerns as well as involving them in the changes that may need to be made.  If there are unions involved getting them on board can be the key to persuading employees to co-operate.
Creditors and investors, on the other hand, may just want to be paid what they are owed and whether they are prepared to forgo or renegotiate payments or finance in the short term will depend on how much confidence they have in its future. 
The bank’s primary concern is to ensure loans are secure, safe and will be paid and will want to be kept informed as well as being given evidence that the business has been properly looked at by a specialist adviser, shown to be viable and any proposals are realistic and have a good chance of achieving the desired results.
It is crucial that the rescue adviser is involved in the management of the stakeholders thus ensuring that their concerns are understood. This will go a long way to ensuring stakeholders’ co-operation.