How do you manage Recovery?

Finance Director by glass windows

How do you manage Recovery?

Dear James,

Welcome to the regular newsletter from vfdnet – Game Plans for Growth.  Each newsletter features one aspect of how to improve your business, providing some tips and prompts for the SME Business Owner.

This month we focus on How do you Manage Recovery?

We hope that you find this newsletter helpful – please forward this to other Business Owners or Managers who might also benefit from it.

Kind Regards


The Idea

Many businesses will sail ‘close to the wire’ on occasions as circumstances don’t always turn out as expected.  However what is the difference between this and trading illegally?  What are the typical warning signs that the business owner should watch out for?  How can owners avoid the pitfalls by learning from other peoples experiences?

Over 50% of companies fail within 2 years of starting and only 10% of companies last more than 5 years.  How can you help ensure that your business is one of the few successful ones?

Game Plan

Business owners and Directors have serious responsibilities towards shareholders, employees, customers, organisations that have a vested interest in the business such as banks and other trading partners (collectively know as stakeholders) and these come into sharp focus when a business sails ‘close to the wind’.

Limited company status normally means that shareholders have their liability capped according to what they have invested in the business by way of share capital.  However if the shareholder / Director is found guilty of ‘trading insolvently’ or ‘trading fraudulently’ then the courts may well recover a Director’s personal assets to offset the company liabilities.  This is one of the serious situations when the ‘corporate veil’ can be stripped away!

In order to limit exposure to such a situation, the director needs to consider carefully whether the situation will improve or whether the business needs to be ‘put down’.  The line between a business being very cash stretched and trading illegally is a very fine one.  The owners and directors need to carefully asses the short and medium term cashflow before arriving at the conclusion as to whether there is ‘light at the end of the tunnel’ or not.

So what are the typical warning signs that you need to take notice of?  Apart from the symptom of ‘lack of cash’ here are our top 10 signs:

  1. Increase in staff turnover
  2. Losing a key customer account or a significant bad debt
  3. Sales orders rising faster than you can deliver
  4. Waiting longer for payments from customers
  5. Unrealistic assets on the Balance Sheet
  6. Increasing stock levels or increasing redundant stock
  7. Cutting prices to chase business
  8. Rising debts at a time of slowing growth
  9. Owners not admitting the truth
  10. It’s not fun anymore!

Many business owners have found that by heeding these ‘early warning signs’ and seeking help at an early stage, that they have successfully managed their business recovery.  vfdnet FDs are experienced in moving into these situations and providing business owners with dependable advice at these critical moments.  We have extensive experience of preparing cashflows and business plans and making successful approaches to Banks and other funders.  In particular we offer a one day ‘helicopter view’ of the business – reviewing all information and giving a verbal end of day report to the business owner advising the way forward.

The End Result

How do business owners learn from other peoples situations?  We have several FDs currently involved in recovery situations and here is a client case study from a technology business Mark Tracey has been working with:

“Mark joined the business in mid 2004 to improve our financial processes, reporting and forecasting.  Of particular concern was the cash flow management, which was, up to Mark’s arrival, ad hoc and unfocussed.  Mark’s clear and decisive analysis determined that the business had been trading insolvently and it was recommended to the Board that professional insolvency advice be sought.  Having placed the business in the hands of a high calibre liquidator in October 2004, Mark was integral to the team that was to ‘re-phoenix’ the business on the back of a sale and purchase agreement of the old company’s assets.  I am delighted to say that the business has since flourished and under the continued and professional financial stewardship from Mark has traded profitably in the past 2 quarters and is in a sound financial position.  Mark continues to drive the financial strategy of the business and is core to the management team and successful realisation of the business in the best interest of our investors”.

Dave Cole – CEO of IPV Limited, Cambridge

Mark works as a part time FD in this business and the re-phoenixing of the business involved the injection of £750k of new funds.