Updated: 18th March 2008
The London FTSE100 Index fell by two per cent during early trading - a sign that investors were looking to protect their money in the worsening financial atmosphere sparked over the weekend in America.
Gary Lee comments: “As yet, the bail-out of Bear Sterns hasn’t hit hard specifically in the Manchester area because it’s an American bank. However, it is an example of the tightening cash crisis that many of the financial houses are going through.
“In the wake of such pressures, financial institutions want to hold on to as much cash as they can to maintain liquidity, which inevitably will affect how much banks are willing to loan to businesses – so it’s a tightening screw.”
Lee also points out that changes in interest rates are not going to affect the credit crunch significantly as the situation is indicative of a cash supply problem. As such, he warns that in the current crisis it is a lack of cash flow that kills businesses rather than interest rates.
Lee continues: “Devoting all the time to chasing turnover whilst ignoring aged debtors in the belief that they will pay up soon, has meant countless businesses have become insolvent. With a shift in focus, such firms could have outlived a difficult trading period and ultimately survived.”
To help maximise company cash flow, Begbies Traynor has devised the following recommendations for Manchester businesses.
1) Don’t assume borrowings can readily be increased to cover difficult periods. In the current climate even obtaining relatively small sums, for example, £20,000 can be difficult and/or expensive. This is all the more true if there has already been an element of loan consolidation, when banks may expect companies to operate without any overdraft provision.
2) Maintain up to date financial information and regularly review key indicators such as actual performance against forecasts and overheads.
3) Utilise assets properly. If there is surplus space, sub-let or sell. If other assets are under utilised consider selling them. If there are more people than needed, consider reducing staff numbers.
4) Check stocks of supplies and products. Over stocking is a firm method of tying up money. Operating ‘lean’ and ‘just in time’ stock policies reduces expenditure, which is crucial when financial markets turn tough.
5) Focus attention on cash flow management. Invest time and effort ensuring clients pay on time and don’t allow too much credit, no matter how good a payer the customer may seem.
6) If the availability of resources is too stretched to manage and chase payment, then review alternatives such as factoring in guaranteed on time payment in return for a percentage of the invoice charge.
Part of the Begbies Traynor Group, Begbies Traynor is the leading independent, business rescue, recovery, and restructuring specialist in the UK.
Summary: The UK’s biggest companies felt the impact today as the bail-out of American investment bank Bear Stearns wiped more than £51 billion off the value of blue chip shares. However, a tendency for financial institutions to sustain cash liquidity in light of such conditions may now affect how easy it is for local businesses to obtain bank loans, according to Gary Lee, partner of business rescue, recovery and restructuring specialists Begbies Traynor’s Manchester office.
Gary is a Fellow of the Institute of Chartered Accountants in England and Wales and a Licensed Insolvency Practitioner with over 20 years experience in the profession.
He has worked extensively with Banks, Asset Based Lenders & Private Equity on mid market & SME assignments. He has a broad range of experience gained through a variety of assignments, working on formal insolvency appointments, informal workouts, debt negotiations and independent business reviews.