FINANCE – WHAT FINANCE? - Jo Haigh

The new economy suggests that if traditional debt funding sources are available, they are in very economical amounts, if indeed at all!’

Whoa betide anyone whose business has gone out of favour for the financial markets, aka retail, construction and recruitment and if you are displaying even the slimmest of declines in your performance, then prepare yourself for a fight to keep what you have, never mind acquiring further cash.

All the high street main lenders have rolled up their shutters to new lends, save for the historically conservative Co-Op and Clydesdale (Yorkshire) Banks, who are taking on some new business, albeit with tough covenants and high interest rates.

Where any lend is being considered protracted timescales are the norm, as credit committees cover their backs, and the rest! Due Diligence is more thorough than ever with even seemingly robust deals being aborted at the last moment.

The new economy, therefore, requires a new fresh thinking entrepreneur to maximise available cash.

Consider first what you have asset wise and how you may exploit it further.  Take your Debtor book for instance, is it worth looking at early settlement discounts or pro-forma deals? Tough credit control, needless to say, is paramount.

Stock – have you looked at your stock levels? Can you sell some to release cash? Would your supplier provide consignment stock or, at worst, free stock to be paid for only when sold?

Creditors – Not just trade, are there deals to be done on payment extensions?  Don’t forget, even if they charge higher than bank interest rates, this is unsecured lending.

Assets – Can you sell them and lease back your fixtures and fittings, plant and equipment and motor vehicles? There are specialist funders for these type of deals.

Create cash – by offering staff a pension holiday or even forsaking contribution payments for a period until business picks up. For most people this is far more attractive than salary cuts.

Some enlightened businesses have introduced a barter system on their goods and services though check out the tax implications.

So, if you have milked all your own assets and still need cash, now what, if the banks and debt are a No-No?

Invoice discounting and factoring, if applicable to your business, is certainly worthy of a serious look and works well provided turnover is good and growing, not dependant on a few key customersand does not have lots of international trade.  But watch for the small print, negotiate hard on the arrangement fees and the admin costs, these are much more onerous than the interest.  Also consider the exit provisions both in terms of costs and timings.  There is a distinct likelihood that the less than savvy entrepreneur maybe so thrilled to get the funding that they don’t consider these issues  and then find they are locked  in an agreement that is ineffectual and expensiveto exit.

2010 is going to be difficult for most businesses – those that survived the last 18 months have done so often due to the sacrifices made by their owners, their homes they have pledged and the salaries they have cut.  If this year requires them to take severe remedial action, many of these companies have no more resources to access and, as such, will fail. Not because they don’t have business but primarily because they have the trade but they can’t service the debt attached.

So my motto “spend less, save more in 2010 – you will need it to survive 2011”

Jo Haigh
Head of Corporate Finance for MGR

Tel: 0844 826 2851 / 0207 644 9674
Mobile: 07850 475878
Website: www.mgr.co.uk
Email: jo.haigh@mgr.co.uk