3 steps to safeguarding your business from financial difficulty

13 July 2020

Graham Hall, Investment Manager, shares how businesses can safeguard during this time.

Every business, no matter what size or sector it operates within, needs to be looking over its shoulder and planning to avoid one common major eventuality, financial difficulty. This manifests itself in many guises but more often than not comes down to a “lack of cash” to meet its financial obligations as they fall due.

Most of us couldn’t have predicted COVID-19 or another pandemic virus type event, having such a rapid and dramatic impact on our financial, logistical, health and social systems. However, some businesses were in a better place to mitigate the short term effects of this pandemic episode, giving them some breathing space to plan a medium to longer term “business pivot”. By no means does this suggest that they were immune to the overall impacts, but it has bought them some valuable time to redirect their business focus.

3 important steps businesses can put in place to strengthen themselves are:

1. Call upon business expertise

A well organised MD/ CEO knows that they cannot do everything by themselves, they need a team or better still two teams;

Internally – a good board and management team with strong variety and blend of successful experience in both the company’s own industry marketplace and outside, supported by at least one experienced Non-Executive Director, to give a truly independent perspective.

Externally – strong professional advisers, including an accountant and commercial lawyer that pride themselves on providing proactive advice, bringing in virtual support where necessary at FD or Marketing level. A strong social media presence is another vital ingredient and can be used proactively to identify and harness income opportunities to help stave off financial difficulty.

2. Always have a credit safety net in place

Whilst a company may not have borrowed in the past, a good discipline to be encouraged by the Board/ NED/ FD is to understand their credit worth and have some standby facilities in place.

Smaller businesses can probably obtain overdraft facilities from their High Street Bank of up to £25k on the strength of the past company track record, current assets and possibly a Director unsupported personal guarantee. Many businesses could also benefit from Invoice Finance facilities which would provide them with a credit line of typically between 70% and 90% of their sales pipeline. Investment cost would come into play for administration, but drawdown interest costs would only apply if the facility was used. These credit lines have a known set of charges and are available to flex accordingly. The above safety nets would be quite difficult to put in place quickly from scratch when an in-house issue arises or where an external industry or global financial crisis suddenly occurs like we are currently facing.

3. Have a contingency plan ready

A basic contingency plan would normally cover short term issues, such as office lock out, IT issues, but even for these events, an effective contingency disaster plan should address how staff could work from home via their own personal or work devices (mobile phones/ laptops/ tablets).

With such a process in place, the business could continue to communicate with their customers promoting its products and services, refining and evolving them to generate sales income or at least chase up monies owed. However, where no plan is in place and now with remote communication, it would be extremely difficult to start from scratch to ensure staff access to customer CRM systems. To avoid this, have a plan to “road test” these contingency measures at least annually.

What does the future post Covid- 19 look like?

It’s still uncertain, but we have many lending providers and financial commentators classifying businesses into one of the three “financial need groups” being the need to firstly, survive, secondly stabilise and finally grow.

The need to “Survive or Stabilise” to overcome financial difficulty, in addition to internal SME actions, can best be addressed externally by following the UK Government support overseen by The British Business Bank (BBB). If, however, an SME currently falls into the need to “grow” group then our Maven MEIF Debt Fund has helped businesses across the Midlands to overcome barriers which have held them back from fulfilling their growth potential. If you would like to find out more about the companies we’ve supported in the past and how the Maven MEIF Debt Fund could work for you, please contact us on the below:

The Midlands Engine Investment Fund project is supported financially by the European Union using funding from the European Regional Development Fund (ERDF) as part of the European Structural and Investment Funds Growth Programme 2014-2020 and the European Investment Bank.

Are you looking for funding for your business?

If your business is in need of finance to help unlock its growth potential, MEIF Maven Debt Finance may be able to help. Contact Maven’s local team today to find out more.

What is the Midlands Engine Investment Fund?

The Midlands Engine Investment Fund aims to transform the finance landscape for smaller businesses in the Midlands and to realise the region’s potential to achieve economic growth through enterprise.

MEIF is a collaboration between the British Business Bank and ten Local Enterprise Partnerships (LEPs) in the West Midlands and East and South East Midlands.

MEIF provides over £250m of investment to boost small and medium business (SME) growth in the Midlands. Learn more here.