As part of the BKK practical help series all this week, the second instalment focuses on cash flow management and business planning. In these unprecedented times, cash flow management is crucial to ensure that businesses will successfully navigate through the coming months or effectively manage the business while it is in ‘hibernation’. Every business needs to have a clear understanding of their cash needs and should have financial models in place that will help forecast an accurate cash position. Businesses need to ask the following questions to truly understand their cash position.
Businesses must take immediate action in order to respond to these prevailing market conditions and BKK are here to take you through this complex process.
We are here to help and really want to engage with and help you at this time. Please continue to speak with us.
Understanding your Cash Flow
- It is vital that you gain sight, understand and stay on top of your weekly rolling cash flow forecasts to truly understand your cash needs
- Consider working capital needs across your entire business requirements for the coming weeks
- Is there cash within a group structure
- Review trading levels and include most up to date assumptions
- Review your future supply chain taking into account expected delays
- Understand the cash within your business (cash reserves and existing debt facilities)
- Create a 90/120 day cash ‘runway’ that can support the business
- Is there a cash shortfall?
Implement Cost Controls and Review Entire Operations
- Over the coming weeks revenues will be significantly reduced or stop altogether
- All costs in the business both variable and fixed need to be assessed and reduced depending on the business needs
- Reviewing your business operations and identifying and understanding what costs you need to run your business to make the most effective use of what you have will be key
- Identify where cost controls can be implemented
- Review fixed and variable expenditure
- Reduce Capex
- Limit discretionary expenditure
- Other examples of Cash Outflow
- Payroll costs – what can the business sustain over the next 12 weeks? and beyond
- Review your accounts payables and postpone payments that are not critical to your business.
- Rent – engage with landlord for holiday on payments
- Rates and Service Charges– local authorities are putting rates on hold, ensure any payments are stopped and get confirmation from your local authority
- Keep stock levels to a minimum where applicable and if possible discount stock to turn it into cash
- Revenue payments – continue to file your returns but do make payments as per revenue guidelines
- Loan repayments – contact your bank and look for a holiday period on capital and interest. Banks are agreeing arrangements over the phone with paperwork following on
- Lease costs – engage with your provider to agree options for revised payment terms
- Utilities and Insurance Costs – agree payment plans with providers to ensure continuity of service. Are you insured for this business disruption scenario, have you checked?
- Agree with employees reductions in employer pension contributions where applicable
- Marketing and Advertising – take a cold hard look at your spend in this area. It may be a case of cutting the spend fully and developing an alternative plan that adjusts to the current circumstances
- Professional Fees – engage with your providers and agree payment plans in line with your cash flow forecast
- General Expenses – Eliminate all unnecessary expenses
Actively Manage Working Capital
· What is working capital? Working capital is a measure of the short-term liquidity of a business, finances the day to day running of a business. This includes cash flow for operational purposes
- Businesses will need access to cash to fund ongoing operational needs and must consider the level of cash “locked-up” in working capital
- Develop a sales forecast to help you understand the cash you are likely to see in your business over the coming months to fund ongoing operational needs
- These forecasts should be as realistic as possible and the ideal situation is when your forecast closely matches reality and this will allow you predict the cash that will flow into the business
- Watch out for the domino effect and key customers collection
- Monitor debtors and focus on cash collection. Most B2B businesses will offer credit to their customers therefore accounts receivable becomes another key factor in determining cash inflows. Evaluate your debtor’s book and make an assessment of who you feel will be in a position to pay over the coming weeks and months. Proactively engage with your customers to understand their ability to pay their suppliers or service providers
- Will there be VAT refunds from debt write off
- Calculate what cash reserves are currently available to the business
- Develop plans to increase sales where possible and think outside the box
- Develop the powers of persuasion. Can you persuade a creditor who is owned say €50,000 to accept a percentage of this amount
- Are there opportunities to develop areas of your business that you would not have considered before?
Engage and Communicate
- Evaluate tax payment obligations and supports available from Irish Revenue
- Change in operating strategy and balance sheet restructuring
- Based on operational needs, review staffing levels and communicate with all staff
- Negotiate and agree a recovery plan with your creditors
- Talk to banks and provide them with your detailed cash flow forecasts
- Review what moratorium available on existing facilities and available funding
- Review all Government supports and initiatives that may be available to your business
Assessment of Viability
- Develop an updated business strategy
- Keep your finger on working capital with weekly rolling cash flows
- Review liquidity and finance options
- Assess current operations
- Review Tax
- Revisit your supply chain
- Finalise your business continuity planning
SBCI Covid-19 Working Capital Scheme
· Is the scheme available for applications? Eligibility applications for the Covid-19 Working Capital Scheme are now being accepted through the SBCI website at sbci.gov.ie
- Who can apply to the scheme?
- Viable micro, small and medium sized enterprises (SMEs) and Small Mid-Cap enterprises that meet the eligibility criteria.
- SMEs are defined
- have fewer than 250 employees
- have a turnover of €50 million or less (or €43 million or less on their balance sheet)
- are independent and autonomous i.e. not part of a wider group of enterprises
- have less than 25% of their capital held by public bodies
- is established and operating in the Republic of Ireland
- A Small Mid-Cap is an enterprise that is not an SME but has fewer than 500 employees
- Business with up to 499 employees can apply for eligibility to the scheme.
Who cannot apply to the scheme?
SMEs/Small Mid-Cap that:
- are involved in the primary agriculture and/or aquaculture sector
- are in financial difficulty (excluding cash flow pressures caused by COVID19 virus impact)
- are bankrupt or being wound up or having its affairs administered by courts
- in the last 5 years has entered in to an arrangement with creditors, in the context of being bankrupt or wound-up or having its affairs administered by the courts
- are convicted of an offense concerning professional misconduct by judgement, fraud, corruption, involvement in a criminal organisation, money laundering or any other illegal activity where such illegal activity is detrimental to the European Union’s financial interests.