Shareholder pay-outs, investment and the balance sheet

cash flow Jul 22, 2022

The Balance Sheet shows the company’s assets and liabilities and how much money the business owes to suppliers at any one point in time as well as how much money it has in the bank.

Central to this is the cashflow, which needs to be well-managed.

Given the current uncertainties over inflation, interest rate rises and the ongoing and well publicised Ukraine war, supply chain and recruitment issues it is more crucial than ever that businesses scrutinise the relationship between their debts and their equity.

A decade of cheap borrowing has, according to The Economist, resulted in a massive “borrowing binge”, where according to statistics compiled by Bloomberg average business indebtedness has risen to more than three times earnings.

At the same time, according to The Economist “The share of operating cashflows reinvested by American firms in new capital expenditure and research and development has declined over the past decade to 27%, from over 40% in...

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Don't give up!

According to PwC the number of UK firms filing for insolvency in the first quarter was broadly similar to the same period in 2021.

But they also reported: “when the smallest firms and companies that were liquidated when solvent are stripped out, the figures show those filing while insolvent more than doubled in the first quarter…”  (our italics).

But why would a solvent company go into liquidation?

Well, there could be a number of reasons, perhaps related to family or lack of successors.

However, given the number of economic headwinds, including inflation, supply chain problems, labour shortages and energy costs, as BDO has reported business optimism has fallen by 4.82 points to 101.93, for the second consecutive month, perhaps it should not be so surprising that patience is wearing thin.

Don’t throw in the towel just yet!

We would advise businesses to hang on in there, especially if they are still solvent, conditions will eventually turn around as they...

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Walk away!

The most recent survey of small businesses carried out by the FSB (Federation of Small Businesses) has found that at least a third of small businesses have seen late payment of invoices increase over the last three months.

Its new chair, Martin McTague, has called on the Government to include in the long-delayed audit reforms a requirement for a board-level role with responsibility for payments.

Small Business Commissioner Liz Barclay has urged small firms to be more “brave” and reject unreasonable payment terms.

She said: “Some small businesses are beginning to say, ‘No, I’ll walk away. I’m not accepting 90 days’.”

Ms Barclay argues that small businesses have more power than they think because they drive the success of larger companies and the latter “are putting their reputations on the line by failing to pay smaller suppliers on time.”.

Fine words, but can you afford to walk away?

Perhaps the question should be...

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Insolvencies are rising fast

Insolvencies are rising fast

But don’t give up now when help is at hand

The insolvency service figures for the first Quarter of 2022 make grim reading with totals at their highest since 2012.

Of the 4,896 insolvencies in England and Wales in Q1 4274 were creditors’ voluntary liquidations.

The Begbies Traynor Red Flag alert put the number of businesses in “critical distress” as up by 19% compared to the same quarter in 2021.

All this makes grim news for businesses that have survived the two years of disruption due to the Covid-19 pandemic and despite considerable ongoing cost, recruitment and supply issues have been hoping for at least some improvement in their activity levels.

The most vulnerable, according to Begbies Traynor, are the hospitality and construction industries.

But businesses should not give up when there is help at hand. The sooner you act the higher your chances of survival.

We are experienced in assessing every aspect of a business and coming...

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Being in business is a risky business

Businesses have been operating within a very uncertain climate ever since the beginning of the Covid-19 pandemic but now their stresses have been compounded by the war in Ukraine.

According to a report in CityAM the majority of investors managing around $1trn in assets are expecting an equity bear market this year and are slashing their exposure in response.

Risk management and building resilience:

Dr Gianluca Pescaroli is a global expert in risk management, and more specifically in how businesses and other organisations can best plan for, and cope with, the impact of a crisis.

He says: "You need to have a very, very clear idea of your critical processes and services. These are essential, independent of whether it is a pandemic, or Ukraine, or climate change. The better you prepare, the better you adapt and react."

The little things are important:

While pricing and supply issues need to be addressed you should also have a checklist of vulnerabilities for everything needed to keep...

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Do you really need all your employees to return to the office?

cash flow employees Feb 04, 2022

The guidance to work from home was one of the restrictions that was recently lifted along with several others that had been introduced to try to control the spread of Covid 19 infections.

The signs are that many have resumed the road or rail commute to the office as traffic numbers are steadily rising.

Was this a knee-jerk reaction by businesses desperate to return to normal? Or was it actually necessary?

Did they ask themselves whether they really needed all their employees to return to work in their centralised office locations?

Given that the economy of the country, and by extension of many businesses, is facing severe pressures as they seek to recover from the damage of the pandemic it will be crucial for businesses to keep a tight control on costs.

There are two factors in particular that are important to assessing whether a return to office-based working is actually necessary.

They are levels of productivity and business expenditure.

The LSE (London School of Economics)...

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Keep your nerve and stay patient

cash flow growth Jan 28, 2022

As restrictions imposed to control the Covid pandemic are lifted it would be tempting for businesses to ramp up their activity in order to return to pre-pandemic normal.

But problems remain. Materials and components costs have been rising, and still are. The global supply chain is still broken. Recruitment difficulties and labour shortages are still an issue.

Getting all these components right and working smoothly is a bit of a jigsaw puzzle.

We have talked about this before but it seems to be relevant again now.

There is a danger in ramping up activity too quickly as the situation eases. Accountants call it over-trading.

This is when a business runs up a big rush of sales on credit without the cash to pay its suppliers and it can rapidly become insolvent.

It is easy to be misled by the figures on the balance sheet, which may paint an over-optimistic picture of the cash flow forecast, especially when some of this is predicated on fixed assets and on the prospect of new investment...

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Happy New Year!

cash flow Jan 07, 2022

I hope you all enjoyed the festive break and were able to refresh, regroup and think ahead for your business in the year ahead.

Unfortunately, there will still be a lot of pressure as there has been over the last two years because the pandemic is not yet over.

Among these are:

Costs – from the impact of rising inflation which has led to the Bank of England increasing interest rates.

Costs – due to the current high price of energy supplies.

Costs – due to businesses having to start to replace loans granted in the earlier stages of the pandemic.

Costs – due to late payments by other businesses, something that the Federation of Small Businesses (FSB) has highlighted as a problem for 30% of the SMEs it surveyed recently.

Costs – due to impending increases from April in National Insurance contributions, the living wage and dividend taxation, something the FSB has also highlighted.

Can you see the recurring theme here?

Is it affecting your ability to put...

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It's good to talk

cash flow insolvency Oct 07, 2021

In tough and painful situations it can be tempting for business owners to struggle on, or live on hope, rather than acknowledging that it’s time to call in help.

It can lead to sleepless nights and a reduction in your ability to get a grip on the situation or make sensible decisions.

It will not solve the problems of mounting debt, the threat of County Court Judgements (CCJs) and insolvency.

I am here to take your calls if you’d like to talk to a real human being with experience of rescuing and turning around businesses.

Get a grip!

The first step to resolving business problems is to know exactly what the situation is.

K2 has a number of free tools for download that can help businesses to get a grip on their situation.

They include a Cash Management tool: https://lnkd.in/gr4bkxW

And if things have gone further there is K2's Guide to dealing with CCJs: https://lnkd.in/ghPgehx

So banish those sleepless nights and worries and get in touch.

Remember the old...

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Businesses will need agility and flexibility for the foreseeable future

cash flow planning Sep 23, 2021

Arguably we are in the greatest period of uncertainty in living memory.

A combination of geopolitics, the climate crisis, accelerating technologies, supply chain disruption, and the ongoing covid pandemic are creating the perfect storm for anyone running a business.

It’s unlikely to change anytime soon so it may be advisable for businesses to build agility and flexibility into their operations as a permanent feature.

From developing new products or services to using more automation, it may seem like a scary prospect, but that is not to say the situation isn’t manageable.

Who knows? In time it may become an exciting and enjoyable way of operating as you discover new and hopefully more productive and efficient ways of working.

To help you, K2 has a free briefing on the use of heuristics to improve your agile decision-making https://lnkd.in/g6XdRBTD

You will also need to know the business cash flow situation at any time to be able to operate in such a climate and...

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