 |
Surviving a crisis
A crisis will generally be a cash crisis.
The key steps to take are to:
| 1 |
Work out how much cash
you are going to need in the short term by putting together
a cashflow forecast. It is the first step towards making
sure you have it.
|
| 2 |
Use this to:
|
| |
| · |
Establish whether
you are unable to pay your debts as they fall due
and are therefore insolvent?
If you are, don't panic, but do get professional
advice from local
help |
| · |
Improve profits
in the longer term |
| · |
Manage your cash |
| · |
Decide what support
you will need from your bank (and how they are likely
to react) |
|
How do you manage a cash crisis?
To survive an immediate cash crisis
you must tighten control of the cash you have by centralising
banking, ordering and payments and drawing up a weekly/monthly
cashflow forecast.
Look at all the transactions you are forecasting to see where
you can:
| 1 |
Get more cash in from
normal trading (eg by taking larger deposits). |
| 2 |
Get in more cash or credit
from elsewhere (eg by selling surplus assets). |
| 3 |
Reduce and/or control
the cash going out (eg by agreeing scheduled payment terms
with suppliers). |
| 4 |
Reduce the amount of cash
you need to trade (eg by tightening up debt collection
or reducing stock levels). |
Will the bank continue to support
you?
Your bank will tend to support you in
difficulties where:
| · |
The bank trusts your integrity |
| · |
You talk to them in time
(and seem likely to continue to talk to them) |
| · |
You seem to be in control
of your business (and its numbers) |
| · |
You have a plan to restore
business health |
| · |
The plan is supported
by reasonable backing forecasts |
| · |
The plan addresses all
necessary issues and doesn't shy away from difficulty
or painful choices |
| · |
The plan sets out clearly
what support you need (how much, how long, how it is to
be paid back) |
| · |
You are prepared to get
in help where you need it from reputable advisors |
| · |
You demonstrate your commitment
to the plan and the business' future |
| · |
The bank is confident
your plan can work |
| · |
The bank is confident
you can make it happen |
| · |
Your plan
does not materially increase the bank's risk (and you
can calculate how much the bank is likely to be comfortable
lending to you on raising
cash). |
How do you improve profits?
To improve profits, you can do any or
all of three things:
| · |
Increase turnover |
| · |
Increase margin (gross
profit percentage); and/or |
| · |
Reduce overheads. |
And if you can do all three, the effects
multiply.
Example:
| |
|
10%
improvement |
|
|
| Turnover |
£1,000 |
+£100 |
£1,100 |
|
| Gross profit % |
50% |
+5% |
55% |
|
| Gross profit |
500 |
|
605 |
|
| Overheads |
(250) |
-25 |
(225) |
|
| Profit |
250 |
|
380 |
= 52% increase! |
So put together a profit improvement
plan that sets out the specific things you are going to do to
improve profit.
|
