Survival in a Downturn

Businesses have a better chance of surviving in a downturn and prospering if they have access to good strategic financial management the knowledge and guidance provided by a proactive and commercially aware finance director and accountant.

About one in eight businesses fail to carry out any business forecasting and one in three only carry out forecasting once a year. It is estimated that a company has an average of 33 weeks to determine whether a series of turnaround initiatives will be enough to save the business - if they spot the warning signs early enough to act upon them. Identifying any potential issues for a business early can mean the difference between a turnaround restructuring or insolvency.

A business must remain receptive to new ideas, and adapt to the external and internal forces for change. Otherwise corporate decline can result. The top 20 causes of corporate decline:

1. Poor management. You must identify where you make and lose money. And look ahead at different scenarios, like what changes would be needed if sales were to drop say 30%. This information is needed to optimise cashflow and maintaine reasonable headroom within agreed loan facilities.

2. Poor communication. engage your staff and management team. They will have many good ideas to contribute towards business success.

3. Organizational ineffectiveness and poor team dynamics. Ensure staff know their responsibilites. Performance evaluations are important for keeping focused on what's expected.

4. Inertia and lack of innovation. Challenge the status quo. Why are we doing this?

5. Inadequate financial information and control. Ensure you have monthly KPIs and management accounts, and monitor them against the business plan. Cash is king. Focus on cashflow.

6. Creative accounting. Watch out for those businesses that appear to be profit making yet have declining cash balances. Turnover is vanity, profit is sanity, but cash is king.

7. Poor working capital management. Consider strengthening credit control, reduce stock levels, sell surplus assets, re-negotiate credit terms, seek 'time to pay agreements' with HMRC.  

8. High costs. Cut costs as soon as you can. If you need to rebalance expenditure to match reduced revenue, do so decisively. Lots of small adjustments can seem like death by a thousand cuts and is slower to take effect.

9. Ineffective marketing. Ensure that your customers are aware of the benefits of the products and services that you supply.

10. Loss of a major customer. Check term of trade too. Risk needs to be priced into pricing and terms of trade, including a provision to charge interest on late payments, termination of contracts, taking early recovery action and claiming a lien or retention of title to goods. Obtain credit reports on major customers. 

11. Overtrading 

12. Quality issues and returns

13. Big overambitious projects

14. Acquisitions & integration issues

15. Be able to justify your decisions. If there is any doubt about the company's performance or its ability to trade out of dificulties, take advice and minute decisions at regular board meetings.

16. IT failure or disaster

17. Slow response to change. Take your chances!  

18. Changes in customer demand 

19. Increasing competition

20. Adverse business environment