Spiralling inflation driving up the cost of business
Sales levels still depressed in some sectors following covid 19
An end to the Government covid related supports
An end to the Revenue warehousing arrangements?
Increased interest rates will reduce access to capital available from the pillar banks
Should we brace ourselves for many business failures in the next 6-12 months?
It’s not all doom and gloom. There is still plenty that can be done to mitigate some of the
Look at your pricing model. What are the underlying drivers of your gross margin? Is it on a cost plus margin basis, are you a price setter or price taker etc? The assumptions you made even three months ago may no longer be the case
Can price increases be passed on, in whole or in part to your customers, and what impact will that have on your sales levels?
Look at what supports will remain in place, after covid. Some of these may be as simple as access to advice and mentoring from your local LEO, BIC or Enterprise Ireland office. Know what is available to you, and the application process involved.
When is your next bank review due? Have you considered if extra funding is required and if so, prepared a detailed supporting application? Don’t leave this until the last minute.
Look at your cashflow. Prepare projected cashflows for the next 12 months, and then for the next 13 weeks (ie three months). This will tell you how much extra funding you will need (for you to request in good time from the banks or other providers). Your 13 week cashflow should tell you where the pinch points will be, and the actions you need to take to minimise these.
Look at options available to fund your working capital, such as invoice discounting, supplier finance etc. Working capital cycles will increase, so having a buffer will give you peace of mind. Also, is there equity within your plant and equipment, that could be refinanced to free up cashflow?
If you have warehoused Revenue debt, from now until April next year make sure all returns are filed and paid on time. This is a condition of the warehousing arrangement, and of ensuring that your business will be able to avail of the reduced interest costs of repayment.
Start planning now for repaying the Revenue warehoused amounts. While details are still uncertain, it appears likely that a term of 3 to 5 years will be given in some cases. The interest rate attaching will be 3%, so this is cheaper funding than what is available elsewhere. However, the business will need to demonstrate clearly that it can trade profitably and make the repayments. Also, there may be a requirement to make a down payment on some of the warehoused amount, which will also need to be factored into the cashflow requirements of the next 12 months. Early engagement with Revenue, through the assistance of your accountants will be key to this process.
If the business is not able to continue trading, then know your obligations as a director, to ensure that you do not inadvertently do something that creates an issue later – such as paying a creditor in preference to another. Recent legislative changes have raised the bar in terms of the level of scrutiny of directors, and their overall level of responsibilities.
Critical to all the above is access to good financial information on the business on a timely basis. This includes monthly P+L, aged debtors, aged creditors, margin analysis and KPI ratios. If you don’t know where the business is today, then how can you navigate the choppy waters ahead? This control can be put in place for a small investment if not already available.
If you would like to speak to us on a no obligation basis, to address any of the above issues, or for a second opinion on them, contact us today.