Common thinking for distressed business owners is they "wish they asked for help sooner" (after the fact). There are many signs of a distressed business. From our experience we have listed the Top 8 indicators:
1. The obvious one is the scarcity of available cash or negative free cash flow. The owner personally lends money to the business and is rarely repaid. 2. Creditors are extremely nervous. They call practically daily. Accounts and owners begin the ignoring game. It is the only way they know how to cope.
3. Payments to employee superannuation is not up to date.
4. They have large outstanding ATO debt balances - with or without payment arrangements. Those with payment arrangements tend to default frequently.
5. Shrinking margins and poor profit results. They have unhealthy gross margins and sales are usually accepted at any cost. Losses year on year are on the rise.
6. Putting out daily fires is the norm. There is no time to work ‘on’ the business.
7. Inability to meet debt covenants.
8. Owners cannot see the light at the end of the tunnel and are exhausted mentally and physically. Ways to improve this situation is to take action – sooner rather than later
Here are some practical tips to assist with cash flow issues:
1. Communicate with your creditors regularly. Do not hide from them. Be open and transparent. Tell them you have every intention to repay their debt and seek permission for time. Provide a payment plan that will be adhered to.
2. Establish better controls for purchasing through policies and procedures. This will provide guidance to employees and restrict surprise spending. Create authority delegation limits. 3. Establish better controls for sales. Implement policies and procedures for pricing, discounts, credit notes and warranty claims. Also don't forget to recoup warranty costs from your suppliers.
4. Automate processes through a systems and process review. For example, manually entering supplier invoices is an operational inefficiency. There are many tools which streamline processes and reduce productivity related costs.
5. Create clear sales strategies to keep the sales team focused and driven on where, and what, they should be selling.
6. Stock related companies should analyse data not just sales numbers. Review stock data in detail – such as fast moving, slow moving, obsolete stock etc. and create a strategic plan for each category and execute accordingly.
7. Monitor compliance to ensure employees are following the new policies, procedures and processes. Be the change and lead by example.
8. Create dashboard reporting to make real time decisions faster.
There are plenty of ways to save a sinking ship...
Unfortunately ignoring your situation will not make it go away. Please reach out if you want to know more. Thank you !