News
07/07/2008
Demand for re-finance packages rises as reality bites for SMEs
Enquiries for re-finance packages have more than doubled in the past two months, according to the LC Factoring Advisory Service, a part of business rescue and recovery firm Leonard Curtis. The service, which provides independent advice to small and medium sized enterprises (SMEs) when considering re-finance options, has experienced a record number of requests for information via its website.
The combined impact of a downturn in the economy and due quarter commercial rent and bank re-payments has left many SMEs short on cash. As a result alternative methods of raising funds, such as asset-based lending (ABL) and invoice discounting, are becoming more popular.
"This hike in online requests for re-financing advice is of little surprise," comments Les Gordon, director at the LC Factoring Advisory Service. "There are few SMEs that are cash rich, particularly at the moment, and the double whammy of rent and bank payments will leave many struggling.
"Factoring is a way for businesses to raise funds quickly using existing assets or the debtor book, and so is a very sensible method for business directors to better manage cashflow without having to approach reluctant banks or give equity away."
The website also received a high number of requests from businesses looking to revise existing factoring packages. "This is similar to re-mortgaging," continues Gordon, "businesses are looking to get a better deal. The challenge is that factoring companies are more risk averse than they were 6 months ago, so owner managers must be prepared to show detailed strategic and financial forecasts to prove the viability of the business."
The increase in online enquiries prompted the firm to develop a confidential agony aunt, named Elsie, to answer anonymous requests for advice from owner managers and financial directors. "Most business owners are reluctant to talk openly about trading and cash flow difficulties," says Gordon, "so this online tool is great. It helps managers take the first step to seeking help sooner than they typically do if they have to talk or meet with an advisor face to face. In today's climate, getting advice early can be the difference between a company's survival and its demise."
29/05/2008
Keeping hold of the reigns in times of trouble
As the credit crunch continues to make its presence felt and "stagflation" takes hold of the UK economy, SMEs face a challenging trading period. With profit margins getting squeezed and sales harder to secure, how can business owners and directors make sure they stay afloat?
Stephen Fern, Director at LC Corporate Strategies, the business turnaround specialist, looks at how proactively managing cashflow, including VAT and PAYE arrears, can help to ease the pressure to allow management the time to seek the opportunities that will safeguard the business' future success.
These are challenging times for SMEs. Falling property values, rising fuel and raw material costs and a consumer market still feeling the effects of the credit crunch and persistent inflation are all contributing to one of the most difficult trading times over the past decade.
So what sets apart those businesses that will ride the storm and go onto achieve greater success? Despite the doom and gloom, a well managed business with a quality product or service to sell can succeed. However, when macroeconomic pressures threaten the performance and sustainability of a business, it is crucial owner managers are on the look out for the warning signs of a business in trouble. These could include:
Gaps in financial information and slipping budgetary controls
- A significant drop in working capital
- A lack of cost controls
- Increasing overdraft
- Deferred or delayed Crown payments
- Unhealthy dependence on a small number of customers or suppliers
- Production disruptions or delays
- Poor staff retention
- Loss of key customers
- Disputes among directors and senior managers
- Deteriorating relationship with funders
At different times most businesses will experience one or other of these factors. But a combination of two or more over a sustained period is usually a signal that something is going wrong. Owner managers when confronted with these challenges can spread themselves too thinly, ‘fire fighting' in a bid to resolve the company's current predicament. This can result in unresolved issues escalating and cause the stakeholders of the business, including banks and other funders, to become uncertain about their position.
Difficult though it may be, managers must try and take a step back from the cold face. There are immediate actions that can be taken to alleviate some of the pressure. Firstly, cash flow controls need to be tightened and if an arrangement with a funder exists, be it a bank or an asset-based lender, it is far better to confront financial performance issues rather than wait until you are unable to pay them. It is also wise to solicit the expertise of a turnaround professional. This is often less daunting than approaching a funding partner for advice, and they will be able to go through the options available to the business.
Each business is different, but options could include; negotiating a new funding package, installing an interim turnaround manager, providing managerial support to the company's existing finance function, compiling financial documents on the company's behalf or even rescheduling mounting VAT or PAYE payments. We have many years experience working with the Crown to help troubled businesses restructure VAT and PAYE payments through a time-to-pay arrangement. By ringfencing this Crown debt, it gives managers of otherwise viable businesses some breathing space.
The aim of a turnaround strategy is to free business owners to concentrate on the bigger picture. Often companies fail because they hit a stumbling block, which results in managers spending all of their time liaising with disgruntled creditors and funders. Once a turnaround programme is implemented, the owner's focus is entirely on the future growth and success of the business.