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• 21 Oct

  How To Survive A Financial Crisis

  Surviving a financial crisis requires urgent action. Businesses can face challenges at any time so this post has some useful advice if you are facing difficulties and want support about how to survive a financial crisis.

  Sometimes it helps just to have a confidential chat with a friendly business expert. You are welcome to call Sean on 03330 113622, he runs our Cash Flow Clinic support groups via social media.

  Definition Of A Financial Crisis

  

  My definition of a "financial crisis" is:

  "The point when the supply of money to a business exceeds the demands placed upon it".

  At that point, the business faces a financial challenge that could threaten its ability to continue to trade, this can also be called a cash flow crisis in some cases, where the liquidity of a company drys up and it starts to struggle to meet it liabilities as they fall due. This could be temporary or it may be the result of a permanent change in the business. Either way, there may be solutions that will assist.

  Possible Causes

  A financial crisis can occur for many different reasons including:

  • Loss of customers or cancelled orders.
  • Reductions in sales volumes due to customer issues, or economic impacts.
  • Increases in costs for raw materials, staff costs or other expenses.
  • Slow down in customer payments.
  • Catastrophic events e.g. a product recall, production shutdown or another negative PR event.
  • Cancellation of credit facilities e.g. trade credit accounts withdrawn, or an overdraft removed.
  • Cybercrime or other fraud perpetrated against your company.

  How To Survive A Financial Crisis

  Whatever the cause, taking rapid action can help ensure the survival of a business through difficult times. These are a few ideas about how to survive a financial crisis that might be helpful:

  1. Take immediate action - don't wait, early prioritisation may help get you through the problem. For example, if you are about to make a non-essential purchase that may be able to be stopped in favour of settling key supplier accounts.
     
     
  2. Get the right advice - consult with professional turnaround specialists if required (or insolvency practitioners if you are facing insolvency).
     
     
  3. Take stock of your position - analyse your current position, identify the causal factors and produce a plan of action to keep your business trading and moving towards solving those problems. Your plan should address the short-term - how to survive the immediate issue, and then the longer-term plan to turn the situation around. See our Free Guide To Turnarounds. It may be that you need to recruit new customers, restructure your finances or cut your overheads.
     
     
  4. Cash is king - understand your cash position, and review/produce a cash flow forecast (your accountants may be able to assist if you can't do this in-house). Understand how much working capital you need. Look at ways to maximise your cash position and the amount of headroom you have. You may be able to approach current suppliers for more credit (which should only be taken if you can afford to do so), access new funding facilities or speed up your credit control debtor collections to improve your working capital position. See our article: How To Improve Your Cash Flow.

  By Glenn Blackman