One of the most challenging questions for any owner/manager in a small company is ‘how to deal with a financial crisis?’ e.g. the cash/overdraft is about to run dry/hit the limit and creditors are banging the door down. It would be pretty unlikely that the business plan (if there is one) identified the likely crisis and more importantly a strategy to deal with such a scenario.
It is not surprising that entrepreneurs always see the glass as being half full and therefore planning for a crisis is not be on the agenda. However, in reality things can always go wrong and often through no fault of the management/business owners e.g. a bad debt can easily wipe out your profits and put a business in a vulnerable position.
The key factor in a distressed situation where you are facing a cash crisis is to stay in control. This is of course easier said than done, as when the pressure mounts it is easy to end up ‘fire fighting’ and often the help that you presumed would be there simply melts away.
Sometimes ‘shutting up shop’ seems likely the only answer, but rarely is there a situation where a more positive outcome cannot be achieved by simply reviewing all the options available. In the last 10 years specialist firms have emerged to specifically help SME owner/managers in these circumstances. The solutions available will often involve putting workable recovery plans in place and introducing new investment into the business to restore financial stability.
With widespread media coverage of the so called ‘Credit crunch’ and the sudden reduction in the general availability of loans along with the increase in the cost of obtaining them from the banks many businesses are looking for different forms of funding.
Increasingly, ‘business angel’ funding is being sought as a very effective alternative, with experienced entrepreneurs being willing to invest not only their money but a wealth of experience into companies that are fundamentally successful concepts but in need of a financial turnaround.
Beer & Young are the market leaders in turnaround funding in the UK and despite the current economic climate have successfully completed a number of deals during the summer months which have given companies a new injection of cash.
One such company to benefit was a Midlands based franchisor that had only been trading for a few months and was showing enormous potential, however it had technical problems with the design of the vending machines; plus the franchisor’s original business partner had problems of his own, that meant he could no longer supply development capital for the business. As a result the sales of new franchises had ceased, vending income was slow in starting-up and the company was in dire financial straights.
Beer & Young were able to introduce a private investor who not only provided the necessary cash, but who also took a significant management role, to replace that of the former partner (who was bought out). The cash injection allowed the company to pay off its most urgent creditors, improve the product offering and, with the continued help of an IIB consultant, to restructure the rest of its debt, so that it could continue to expand at its former rate.
Whilst the banking community tighten their belts, it is clear that the business angel work is very much alive and active.
There is much doom and gloom in the newspapers at present and predictions are all offering tough times ahead for business community. And the ones that always seem to get hit first are the small businesses! Whether it’s a lifestyle business or a company employing 100 staff, the squeeze is on from the banks and that can lead to cashflow problems.
However there are some positives out there for those who seek them.
Specialist business angel networks that operate in the turnaround sector of the market are commenting that actually that there is more and more activity and money is available for the right businesses. Not all business angels operate like those on Dragon’s Den! Most are looking to add value to a business as well as invest their own money. Most are not looking to take control, they are backing the management team.
If the business has the potential to make profits in the future, the wise business owner will search for the active turnaround business angel networks and see what’s on offer.
Read any business newspaper these days and it is difficult to avoid references to negative equity, higher prices on food and petrol and or course the credit crunch. As the economy threatens to move into recession and banks tighten their lending criteria many Birmingham businesses are struggling to raise business finance and in some cases are seeing their credit lines withdrawn altogether. It is therefore refreshing to hear a good news story which will benefit thousands of business in and around the Birmingham area.
Beer & Young, a national company with Head Offices in the City of London, specialises in raising new capital quickly for companies experiencing cash flow pressures, creditor problems and banking difficulties. The company which is celebrating its tenth anniversary this year is opening a new Birmingham office with the aim of helping the growing number of businesses in Birmingham and the surrounding areas who are cash starved as a result of the current trading environment and credit crunch.
Nicholas Young, Managing Director, has noticed a sea change in the needs of clients in 2008. “Over the past few years the market has been awash with easy and cheap credit but now we are seeing clear signs that the credit crisis which has hit the property market hard has spread to the small and medium business. More and more companies tell us that whereas last year the bank would normally extend the overdraft to ease a temporary cash flow today bank managers more likely to review the overdraft limits downwards, thus adding to cashflow pressures.
To meet the growing demand for equity B&Y has opened a new office located on the Birmingham Business Park near the NEC and a Regional Director, Brian Rutter has been appointed to spearhead this expansion. Brian says “we definitely want to hear from those companies who are experiencing cashflow difficulties for whatever reason this might be. We will always offer simple and practical advice and can raise new equity based capital quickly via our extensive network of over 1000 investors or business angels.
“We are also keen to hear from professional introducers who wish to work with us. B&Y has built its business almost entirely by personal referral and are comfortable working with bank managers, asset based lenders, accountants and consultants. We are definitely not in competition with these companies; indeed our belief is that we have a win, win, win situation. The client receives new equity capital and the bank/lender, accountant and consultant retain a successful client.”
June 2008
The first five months of 2008 will be remembered as a period of significant financial turmoil as the impact of the global credit crunch has been felt across the worldwide financial system. The impact on business finance for small and medium sized businesses has been felt in the past few months with liquidity becoming an increasing challenge.
The good news, however, is that the ‘recovery culture’ that has been established over the past 10 years or so, now seems to be fully embedded within the financial services sector. Institutional lenders are generally receptive to sensible recovery solutions and will not simply ‘pull the plug’ at the first sign of trouble. The bad old days of the late 1980’s and early 90’s seem to be well and truly behind us.
It should be noted that we also have to give the government credit where it is due and say that legislation and the attitude of HM Revenue & Customs (HMRC) has played its part. Their supportive and more flexible remit has seen them being prepared to agree repayment proposals when arrears have built up. Although HMRC don’t like transactional taxes (VAT/PAYE) being used to fund working capital requirements, they will often allow businesses the opportunity to trade their way out of a difficult period – plus there is little incentive to crystallise a ‘loss’ when a recovery plan looks viable.
We have also seen the emergence of specialist firms that provide effective recovery solutions for distressed businesses. These are not traditional Insolvency Practitioners but firms made up of experienced professional advisers who look to put recovery plans in place. These can often include the introduction of new ‘business angel’ investment, which provides the financial catalyst for ‘real’ recovery.
The emergence of the internet and the availability of information online have also positively impacted on the ‘recovery culture’. This can often be the route to find the specialist help and services that are needed when financial distress is encountered – asking your accountant or bank manager is no longer the only option.
SME BANKING RELATIONSHIP MANAGERS + BEER & YOUNG
THE CATALYST FOR BUSINESS RECOVERY
We all need a little extra help sometimes – even some of the biggest banks in the world have had to raise business finance in 2008. But where do SME’s turn when the going gets tough and additional capital is needed to re-build their depleted balance sheet? This is where Beer & Young can be the answer. Since 1998 Beer & Young has been acting for undercapitalised SME’s who have often reached a critical point in their banking relationship. Beer & Young is focused on investor backed recovery solutions – the typical Beer & Young investor will be an experienced ‘Business Angel’ willing to invest in a turnaround situation or simply where urgent funding is required. Beer & Young is delighted to have forged close working relationships with many relationship managers across the banking community. Some, but not all, operate within the business support/special situations departments of the bank. The common characteristics of the accounts that are being managed tend to be:
- Profitability has deteriorated and/or losses are accumulating
- Liquidity is poor and the bank facilities are increasingly ‘hardcore’
- Gearing has reached a tipping point where the bank is no longer comfortable
The above could be described as the ‘hard issues’, but financial ‘fire fighting’ takes an inordinate toll on business owners in terms of emotional energy and commitment. The old adage of ‘trying to see the wood for the trees’ is often very pertinent. This is an area where the hands on help and experience of a Business Angel investor can be invaluable. We all know about the problems that the global credit crunch has caused, but this has not affected the investor appetite for SME opportunities. Business Angels will make their own decisions as to how and when they invest – they see investing in businesses that have been successful in the past as far less risky than early stage/start-up situations. This is a counter cyclical market, where there is increased liquidity for turnaround/distressed opportunities. The upside for bank relationship managers is that there is access to ‘Business Angel’ funding for SME’s via specialist firms such as Beer & Young. We are always pleased to talk to bankers to explain our services more fully and listen to the views of front line lending managers. Please contact our London offices on 0207 329 6886 to arrange a convenient appointment – please ask for Kylie van den Berg (kylie@beerandyoung.com),
Nick Young (young@beerandyoung.com), or
Declan Williams (williams@beerandyoung.com).
17 March 2008
‘Financial distress through to Business Finance in the SME sector’
There are few things that are more challenging for entrepreneurs than constantly having to engage in financial ‘fire fighting’. A company with cash flow problems will be juggling every cheque it receives in an effort to stay within the overdraft limit, pay its creditors, maintain supply, and on top of all this pay overheads and salaries. As well as being extremely stressful, this distracts SME business owners from the really important issue of keeping the customers happy – getting products out the door or delivering the services that they should be.
There are many businesses that find themselves in this situation but simply haven’t got the appropriate skills to deal with this level of distress. This is not a criticism, directors don’t plan for the company to ‘hit a financial brick wall’, but will often leave it very late before seeking the help that is available.
The good news is that there are some well established specialist firms, like Beer & Young Limited (established 1998), who can provide robust recovery solutions, which will often include the support of ‘business angel’ investment. This presents distressed businesses with an opportunity to recover with the benefit of an experienced entrepreneur who will also make a financial commitment. This is viewed as less risky by many investors as they see troubled businesses have been successful in the past, and with the injection of some fresh capital and expertise they can be successful again.
The key is to try and stay in control of the situation and seek help quickly. Major stakeholders (including banks and HMRC) are supportive of sensible recovery plans based on sound professional advice.
Please see the Beer & Young website: www.beerandyoung.com/case-studies.php for case studies and testimonials. They can also be contacted direct on 0207 329 6886.
