A business crisis can take many forms but is often characterised by cash flow problems.
The operations of the business are disrupted, and doubt is cast over its future if its senior management team does not take swift, appropriate action.
The situation may have built over a period of time or may have occurred suddenly, but either way, the crisis demands a timely response from management to avoid irreparable damage to the business.
In the case detailed below, the management team needed support from a highly skilled and experienced finance professional who could quickly identify the core issues, negotiate with key stakeholders, stabilise the company’s financial position, improve cash flows, and provide strategic guidance to help the organisation recover.
Increasing incoming cash and reducing outgoings
A Dartcell Finance Director joined the business and worked closely with the CEO, department heads, and finance team to help the business recover from this difficult period. Specialising in crisis management, the FD was able to quickly understand the problems and introduce rigid cash flow controls, buying time for the company to fix the underlying issues and trade out of the crisis.
The company was struggling to pay off its debts to creditors due to the cash flow problems it had been experiencing. To buy the company more time, the FD contacted suppliers, HMRC, lenders and other creditors and agreed payment plans with them, deferring payments until a later date. To support these conversations, the FD created realistic short term cash flow forecasts which demonstrated that the company would be able to meet the agreed payment dates in the future. The company’s creditors were reassured by the presence of our skilled FD, leading to more lenient payment dates.
To increase the flow of incoming cash, the FD ensured all invoices were sent out as soon as possible and addressed the company’s debt chasing procedures to improve cash collection from customers. Dartcell’s FD analysed all the outstanding debt owed to the company and prioritised high value debtors first to achieve the quickest improvements in cash flow.
Appeasing lenders and raising additional funds
To increase its likelihood of survival, the struggling business needed to appease its existing lenders and raise additional financial support, making fundraising an essential step in this crisis situation. The FD handled the resource-intensive process, forecasting the amount of capital required and identifying the best sources of funding for the company. Highly skilled in these kinds of negotiations, the FD was able to liaise with banks and other institutional lenders and secure much-needed capital for the business.
Creating a medium term business plan
Taking a holistic view of the business, the FD worked with the senior management team to create a medium term business plan which focused on quickly turning the business around. Analysing management accounts, historic trends and ratios, the FD was able to identify key drivers of the business and see which areas were losing the business money. Motivated by the need to keep the business afloat, the business owner agreed to sell off these parts of the business and cut low margin product lines to generate cash. The business owner depended heavily on the FD to produce integrated forecasts that justified these strategic decisions and demonstrated that they would lead to increased profitability in the long run.
Using their extensive network, our FD was able to introduce the management team to new lenders and suitable investors interested in the business. Drawing on years of experience dealing with corporate stakeholders, the FD created the investment proposition, presented it to potential investors and took the lead in negotiating the best deals for the business. Hiring an FD was fundamental in raising this additional finance, which helped relieve the financial burden and keep the business afloat.
As a result of the various measures implemented by Dartcell’s FD, the final amount of cash that the business used was 40% less than that which management thought was required initially. This was the difference between business failure and survival.
The medium term business plan was implemented successfully and the business became profitable again in the long run. The support provided by our skilled FD helped the business improve its business activities and survive the crisis, while the strategic guidance ensured that the business went on to prosper.
If you need support from a highly experienced Finance Director that specialises in business crisis management, please contact us.