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Cash Management – What should Finance Directors be doing to protect cash?

Updated: Feb 6, 2023

Many businesses across the globe are in survival mode right now. This change in mindset can present a huge challenge for senior finance teams. Similar to traditional ‘turnaround’ projects, there are some key tactics that Finance Directors should be deploying to get their organisation back on an even keel.

When a business is in financial distress, it is important to buy some time to fully assess the position of the company. Weekly cashflow forecasts can be very useful as a short-term tool in monitoring spend.

Below are some options for Finance Directors with the aim to protect cash and plan for the next 12-24 months.

Stop capital expenditure – Only essential capital items should be purchased when management is concerned about running out of cash. A complete stop on capex may not be feasible and hurt revenue streams, but a thorough review and sign off of future purchases should be carried out by senior operations and finance staff

Get staff costs under control – Usually interim consultants in the business can have their contracts terminated quite quickly. Overtime for full time staff should need to be pre-approved during this period. Staff redundancies are also an option once all other avenues to control staff costs have been explored or implemented

Talk to your creditors – There is nothing worse for a supplier than not knowing what situation you are in, when struggling to pay invoices. Speaking from experience, creditors can be flexible in these situations and this can buy you valuable time. Look to pay your smaller and maybe your more local suppliers – this allows you to ‘tidy up the big picture’ and takes away a lot of the ‘noise,’ giving you more clarity on your payables

Talk to HMRC – As discussed above, talking to HMRC and discussing ‘time to pay’ and payment plan arrangements can play a key role in conserving short-term cash and eventually maybe saving the business. You should engage with HMRC early if you think you cannot meet your immediate tax liabilities – again this can buy you valuable time

Talk to investors / shareholders – It is likely, given the current situation brought on by the Covid-19 pandemic, your investors and shareholders will be willing to listen and be open to new ideas to keep the business afloat. It can be a lot easier to raise finance in-house rather than attract new investors or convince the bank to extend existing credit facilities or issue new finance

Sell the business – A competitor or another party may be interested in buying your business at a knock down price. This option could potentially save many jobs and result in a bigger more robust player in the market for years to come. Speak to two or three corporate finance firms and explore your options for a sale

Short term cashflow issues bring very stressful times for Finance Directors. The actions briefly discussed above are not the only options available but, are some of the tactics Finance Directors working in distressed businesses, should being thinking about and acting on.

Whatever survival tactics are used, the key is to act early and face the problem head on.

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