insideKENT Magazine Issue 32 - November 2014 | Page 155

BUSINESS MIND THE CASH GAP THE CONTINUING TROUBLES OF THE HIGH STREET RETAILER HAVE BEEN REGULAR FEATURES OF THE NEWS IN RECENT MONTHS, WITH SOME WELL-KNOWN NAMES ENTERING ADMINISTRATION. NO DOUBT THE ADMINISTRATORS ARE WORKING HARD TO PROTECT THE EMPLOYEES’ JOBS, PAY OFF CREDITORS, AND HOPEFULLY SELL THE BUSINESSES AS GOING CONCERNS. WHY DOES THIS HAPPEN – THE ISSUES ARE MYRIAD, BUT SOME ARE: 1. Tough trading conditions – Not enough sales to generate cash to pay creditors/employees/ landlords, replenish stock, and meet loan obligations. 2. Cutthroat discounting across our High Streets – Despite an economic improvement, the consumer remains cost conscious when it comes to spending their hard-earned disposable income. 3. Fundamentally, the cash has run out – The directors are protecting their business from trading in an insolvent position and have turned to the administrators for help. SO, HOW DO YOU PROTECT YOURSELF FROM THE CASH GAP AND CONTINUE TO TRADE PROFITABLY, MEET OBLIGATIONS AS THEY FALL DUE, AND GENERATE CASH FOR FUTURE INVESTMENT IN STOCK, EMPLOYEES AND CAPITAL EXPENDITURE? 1. Develop robust profit and loss, balance sheet, and most importantly, cash flow forecasts. 2. Ensure your budgets identify gaps in funding – In particular, for a seasonal business there will be fallow months. Do you have sufficient resource to close the cash gap? With the strong possibility of a rise in UK interest rates, thereby pushing up the cost of borrowing and indeed the ability to both service and repay loans, a living cash gap strategy is very important. So, ask yourself, do we have a cash gap and how do we ensure it’