Monday, October 22, 2012

Cash Management In A Depress Economic Climate

Within a growing economy, confidence led banks and businesses to concentrate on P&L's management and to disregard cash management. In the current economic climate, the importance has changed and cash management is the thing which holds sway. What does cash management suggest? It really is to off-load as much risk as you can. These companies should have a pre pack administration to battle such economic depression. This implies that suppliers have to provide their customers with adequate funds to enable them to continue investing, which forces reliance up and down the supply chain.

In the current climate it is not unusual to be under pressure from your suppliers to change your credit terms, or of good customers having difficulties in paying their expenses. The usual response is to start juggling with cash, which inevitably end up in crisis management. This is not cash management, this really is gambling with your business cash! Cash management ensures that companies are adequately positioned against problems in the supply chain.

Jean-Bertrand de Lartigue, MA Consulting International chief executive, states "liquidity is now a priority. You need to clearly demonstrate that you are in full control of your cash position by improving your working capital performance, to provide security in the long term to your supply chain as well as your banks".

Cash is actually money that you can access easily possibly from the bank or within the company. It's not inventory, it isn't accounts receivable, which is not property. You require petty cash or money in the bank to pay suppliers, to pay the rent, and also to pay your workers.

Many businesses think that profit growth means extra cash. Not necessarily, profit may be the amount of money you get if all of your customers pay on time and if your payments are spread out equally over the year. Unfortunately life is not that easy. Cash is what will make your business endure. Over time, your profit is actually of little value if you do not have a positive internet cash flow. You can only spend money not profit.

Due to the down turn in the economy, many businesses are faced with a cash crisis. In case you are juggling with cash, this is the time to stop doing that and to start identifying the root result in or causes of the crisis. Frequently encountered causes include:

o Your sale projection are over upbeat
o Your strategic choices are usually pointing you in the wrong direction
o You have a great strategy but your execution of the strategy is poor
o Your operating costs are way too high
o Your fixed costs are too high and they are decreasing your flexibility
o Your resources are insufficient or in the wrong place
o You endured too much on unsuccessful R&D tasks
o You are facing intense competition
o Your debt burden is excessive
o Your Inventories and/or Receivables are excessive
o You have too much money tied up in your property portfolio
o You have inadequate financial controls

If some of the above is true to your business you should embark on a turnaround process.

First thing that you need to carry out on behalf of your business is to change the management team. The existing management team have got you into this crisis, are not in a position to see the whole image, and are not able to manage the business out of the problems. This is a very difficult task and requires a lot of courage to admit failure and fire people you might have known for a very long time. It is recommended that you should contact turnaround specialists, as they might have an independent view and would be able to make the tough choices on your behalf.

Once you have a new team, whether for the long term or to get you through the current crisis, they will perform a situation analysis to evaluate the prospects of survival. Supposing your business is worth turning about, you should select the most suitable strategies for survival, and existing them to the board, get their buy in, as well as the staff buy in. Then present the existing situation and your remedial strategies, as honestly as you can, to your creditors and banks to get their support. The review should include possible divestment of certain assets and businesses, a reformulation of your growth strategies, cost reductions and strategic acquisitions, to achieve positive income as soon as possible through the elimination of departments, reducing personnel, selling excess inventory, selling non core businesses...

When the crisis is over and you have returned to a positive cash flow situation, you have to implement the strategic plan, improve processes in your continuing operations, adjust the product mix and reposition products if required. The management team focus is now on achieving sustained growth and profitability. The changes are internalized; staff regain assurance in the company and emphasis is placed on growing the restructured company, while maintaining a strong balance sheet.

In some cases the prospects of survival might be too risky to continue as an ongoing operation, and you ought to choose the appropriate exit strategy depending on the urgency of the circumstance. It is recommended in those cases that you should consult an insolvency practitioner to make sure that you are not trading illegally, and to analyse the various options that are offered to you, from going into pre-pack or administration; to exit the market by immediately liquidating or selling to another company; or to play the end-game, maximizing near-term cash flows at the expense of market position.

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