As an experienced Chartered Accountant, Part Time Finance Director, Management Accountant & Business Advisor, I am a person who likes order and must know where a business is now and heading via its vital management accounts, forecasts, and latest strategy.
When I get a call from a worried Managing Director who says that they have not received any Management Accounts for a few months, I get all hot under the collar. The conversation typically leads onto the view that the only solution is that the accounting records must be scrapped and re-entered. After some probing questions, the conversation then moves on to the strongly held view that the business is, of course, sound despite the fact that the business is now struggling to pay the suppliers within the agreed payment terms. Then I hear that their Management Accountant has become evasive or worse still has had to take time off work for ill health.
Sadly experience has taught me that when there is a lack of timely management accounts, there will be nasty surprises, and nasty surprises will invariably come at the worst possible time.
The key indicator for me is that the business is struggling to pay creditors on time. A sure sign that business is clearly in trouble. In traffic light terms, the lights are very bright and clearly on amber. Experience has taught me that when people say they have a cash flow crisis, what they are really alluding to is that the business is making a loss, and it has been losing money for some time without either anyone noticing, wanting to flag it up or worse wanting to deal with it.
Whether the business is currently in a state of Distress (for example – you are stretching the days you take to pay your creditors, and your friendly bank manager urgently wants to see you), or it is in Crisis (for example – your suppliers have put you on stop or and the bank manager is no longer your best friend and he is now bouncing your payments), will only become apparent when the financial position is ascertained from up to date management accounts, KPI’s, and cash flow forecasts for example.
There can be only one response from a competent Board of Directors. Decisive and immediate action is required! The problem will not go away. If the decision is put off or dismissed, matters will undoubtedly become quickly terminal, and the business will be forced to close with many negative and serious consequences for all the parties involved.
The next steps for the Board of Directors to take are naturally not rocket science, and are merely common sense:-
1. Recognise your responsibility.
2. Take responsibility.
3. Seek appropriate professional advice.
4. Establish where the finances are now.
5. Ascertain the reasons for the current position.
6. Make a decision whether the business can saved or not.
7. If it can be saved, devise a credible and achievable turnaround plan.
8. Communicate with all parties (staff, bank, clients and suppliers).
9. Obtain the support all parties.
10. Implement a rescue plan.
11. Monitor progress.
12. Learn from your experience.
While every business is different, the same basic rules apply to every business no matter what size, discipline or activity. You must know where you are. You must know where you are going. You must know the business will be managed effectively. Above all, you must generate cash from your day to day trading to survive.