What to do when your firm is hit by disaster

IF you watched in horror as small businesses around London burned a few weeks ago and wondered what you would do if that happened to your company, you aren’t alone. Destruction of your premises is a tragedy, but it doesn’t need to be fatal. At Carter Backer Winter, we’ve dealt with this stuff before. Here’s my five point action plan for picking up the pieces.

1. PROTECT CASH. This is key to the survival of the business. Review the business’s payment profile to creditors and seek to negotiate extended terms for payment, or suspend payments, where possible. Pay particular attention to standing orders and direct debits and cancel them if at all possible. Delay paying wherever you can. At the same time, be ruthless with customers and debtors and get cash out of them. Pull out the stops to collect all outstanding debts. Perhaps offer customers incentives to pay more quickly. Don’t allow any laxity on credit terms (stick to 30 days) and try to get money upfront wherever possible. Don’t be afraid to put customers on stop if they don’t pay.

2. STALL THE TAXMAN. Approach the taxman regarding any upcoming tax payments and negotiate a “time to pay” arrangement to put-off paying up until the business is on a stronger footing.

3. CUT STOCK. Review your stock levels. Be efficient with the use of stock and keep stock levels to a minimum. Where orders have already been made, contact the supplier and seek to reduce the size of the order. Consider a fire sale to reduce existing stock levels.

4. REDUCE OVERHEADS. Negotiate a rent reduction or a temporary payment holiday or rent-free period with your landlord. Suggest paying rent monthly in advance rather than quarterly. If you have spare space, consider turning the extra capacity into cash by renting out desks to start-ups or down-sizing businesses.

Depending on the type of business, staff is usually one of the largest business costs. Consider negotiating wage reductions on a temporary basis to preserve jobs and invite non-essential staff to take unpaid leave, or move to part-time. Eliminate any unnecessary expenditure – cut out business lunches and overtime for staff.

5. ACT QUICKLY. If things look really grim, take early advice from financial specialists accountants and insolvency practitioners. You could negotiate a CVA to provide a moratorium with creditors – saving cash today and paying over an extended period of time. Frequently businesses in difficulty wait too long before seeking advice, which reduces the number of options open to them. Emergencies, while unexpected, are predictable. Many difficulties faced by businesses in a crisis can be reduced with a bit of forward planning. Have a Plan B: a temporary location with back-up files – where you can decamp the business in the case of serious fire, flood or other damage to the building. Take out key man insurance to provide cash to the business in the case of a death to enable it to continue until new management is in place. Try not to be dependent on a small number of clients or a small number of suppliers – spread your net as wide as possible.