Date post: | 17-Feb-2017 |
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Business |
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1 For internal communication only
Andrew Barbaro“The upturn in the economy – establishing who the winners and losers will be”
6th October 2015
1 May 20232
Who remembers the “credit crunch”?
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Economic downturn• Businesses had problems if• Isn’t easily scalable / massive fixed monthly
costs• Has poor cash reserves / liquidity
• Heavily dependant on invoice discounting• Has an inexperienced management team
“keep going! it’ll be fine!”
(6 months later) “keep going! it’ll be fine!”
• Poor relationship with bankAnd/or• Their bankers have problems of their own
and behaved accordingly
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Economic downturn•Businesses at risk:
• Fail to recognise the depth and breadth of the recession
• Fail to “cut their cloth” accordingly
• Continue to chase turnover with little or no profit for the business.
• Under capitalised businesses run as “lifestyle companies”
• Companies barely able to repay bank interest/finance charges “Zombie companies”
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Comprehensive approach• Within the organisation:
• Business external sales force
• Accounts Receivables: slow/stop/legal
• Visibility of customer exposure/behaviour at group level.
• External to organisation:• Credit Circles• Other Credit Managers• Construction industry
discussion groups
• Contact With The Customer:• Recent customer
management accounts
• Credit Visit
• Agency Data:• Credit Agency Reports• Shared payment
performance data - monthly
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Example of Payment Performance
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Segmentation is key!
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Segmentation is key!• Understanding who poses risk• Which customers can survive long term• Obtain the latest information possible• Result – three classifications
• Red• Highest risk – could be a bad debt in less than 6 to 12
months• Amber
• Overtrading? No obvious signs of failure but a risk.• Keep checking in
• Green• Less management time spent• Sales opportunity?
1 May 20239
Lower risk business do this:• Cut deeper, faster • Review their strategy –
challenge the current model and redefine their customer offering
• Stop loss making activities• Preserve cash, actively
recover their receivables.• Turn sales into cash quickly• Rebuild balance sheet -
retaining profit in their business
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Six years on…
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Six years on..• Economic improvement from a flat economy• Market place has right-sized and corrected
itself• Weakest have failed
• However many weak companies continue on• Debt laden• Barely able to service debts• Chasing turnover to maintain ID cashflow• Hoping for the best
• Interest rates – flat at 0.5% - for how long?
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So who is at risk now?Some “features” of risk companies
• Heavy dependency on ID facilities
• All assets are charged by banks
• Flat or declining performance
• Creative accountancy
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What to watch for• More!• Excessive dividends/Director payments at expense of
company• Directors doing well• But the company isn’t.
• Inability to pay other suppliers when they fall due• Rumours of poor payment, usually to commodity
suppliers• Ownership changes of company assets: “ring fencing”• Properties now owned by directors personally• Or by a separate company• Departure of “high flying” key staff
• Including sales directors, managing directors and finance directors (why?)
• Low stock levels, frequent “no stock” issues• Gaps in stocks – Are suppliers placing the company on
stop?
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What to watch for• Company losing money, but the directors steadfastly follow
their current plan.• Language in accounts:
• “challenging”, “depressed market”, “continued pressure”
• “Challenging year.. We hope for an upturn in the economy next year..”
• “We anticipate an upturn in business with the Green Deal”
• “The continuation of activities is dependant upon…”
• ‘Business advisor’, ‘Turnaround consultant’ or ‘external consultant’ is present.
• Director receives a Queens award for “services to industry”
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What to watch for• Some poor performing companies continue to trade –
• it’s not always a sign of the banks confidence in them.
• The banks may be an unwilling passenger!• The banks may be confident in their security
• Loss of lender/bank support is usually followed by company failure
• The company directors are always the reason for a company failure
• If something in a customer’s behaviour concerns you – ask questions!
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It’s the jockey – not the horse!
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The visit• Attend alone or with sales?
• How you turn up to meetings
• Meeting the right people
• In the right circumstances
• Eyeball the empire
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THANK YOU