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Cash flow is key for survival


IT is a bloodbath out there. "SMEs are suffering, surviving day-to-day," says Garrett McCarthy, an accountant with Hugh McCarthy & Associates.

"Businesses are doing their best, cutting back as much as they can, but suddenly clients can't afford to pay, monthly expenses stretch out to six months, things start bouncing left and right. Everyone is in trouble -- anyone who says otherwise is putting a brave face on it."

Garrett McCarthy spends about 60 per cent of his time engaging with banks and Revenue on behalf of struggling clients.

But help is at hand. McCarthy is one of the volunteers for Cava, a new body that wants to help small businesses and sole traders manage debt and tax problems.

It's free and staffed by volunteering accountants, a type of MABS for distressed business people. Set up by Chartered Accountants Ireland, the service is rolling out nationwide, having been available in the greater Dublin area for some time.

We asked Cava for a steer on five of the most burning issues embattled entrepreneurs are bringing to its door.

Chasing debtors

Everything starts and ends with cash flow. Where banks won't help and debtors are slow to pay, invoice discount companies like Bibby and Celtic Invoicing can collect on your behalf. They charge a percentage for their service but could save you umpteen debt-chasing man hours, and can help keep you liquid.

Continuous contact is the best way of pursuing what you're owed. "Keep in touch with your debtors all the time. You don't want to go down a legal route without consideration, because you'll lose a client," says McCarthy.

Prior to taking a contract, suss out clients' creditworthiness through credit checkers like Vision Net and Credit Safe. There are fees, but it could save you hundreds in dud contracts.

"Many companies do credit networks to stop a client burning one supplier and moving onto the next," adds McCarthy.

Talking to new customers and getting a feel for their business helps establish their bone fides.

Being chased by creditors

If you feel you can't talk to your bank or don't dare to approach the taxman, you can confidently go to CAVA or to MABS, both of which can help fight your corner. Deals are being done, payment schedules are being agreed to.

"If you're genuinely in trouble they will stop hassling you and give you a chance to get back on the horse and get going again," says McCarthy.

"For other creditors, talk to them the way you wish your bad debtors talked to you," is his advice. "They will not be happy, but they will prefer to get something than nothing, or if there is nothing left they will prefer to know it."

Seek moratoriums, interest-only periods, extended terms on loans for machinery, computers, cars, etc. A one-year machinery loan at €1,000 a month stretched to five-years can reduce payments to €100. It costs more in the long run but gives you breathing space now.

And don't hide from the taxman. "If you engage with the Revenue they're very reasonable," says McCarthy.

Paying leases

Even if you are locked in to an upward-only lease, you can still negotiate with the landlord.

If you're renting a premises in Liffey Valley or Dundrum or somewhere else which involves dealing with a big institutional landlord, then there's very little you can do -- but if you're in a shop on a high street dealing with an owner, there are deals to be done.

Where you are paying rent in a Nama-owned property, a favourable view of reductions for struggling tenants is being taken -- in theory at least.

"Nama is saying that it will not stand in the way of a reduction being granted to a vulnerable tenant," says David Fitzsimons of Retail Excellence Ireland. "However, as it only launched the guidelines in December last it is very early on to say if they are engaging or not.

"This week we advised all our members to revert to us where Nama landlords refuse to engage."

Slashing costs

"The businesses I'm seeing survive best are cutting costs to the bone," says McCarthy.

He advises looking at the head count of workers. "While this is never easy, it is better to reduce the numbers now and save as many jobs as possible than for all of them to go. Also, you owe it to your own family to try to save the business -- or at the very least, to limit debt. Perhaps ook at prople working shorter weeks or taking redundancies."

Go through the books to see if you can you sell assets you don't use to pay down debt. Look at your office or business premises space and see if you need it or need all of it. Can you sublet part of the premises or car parking space?

Review insurance and utility providers. There are major differences in professional indemnity cover and commercial vehicle insurance. Competitors with An Post say their service is around 20 per cent cheaper.

Cut your stock so that thousands in cash isn't tied up for long periods.

"Look at your sales -- are you making money or just giving things away? Cut back to those sales that are profitable," McCarthy says.

Is my business viable?

This can be the hardest question of all. A big sad dose of reality medicine might be what you need.

"Look at the numbers," says McCarthy. "Compare what you are owed to what you owe. Then review what you are owed to ensure it is collectable in a reasonable time frame (30-60 days). Be realistic. Going to court for small and sometimes large debts may not be feasible -- even if you win, the costs are crazy and often debtors can't pay anyway."

If there is little chance of survival, don't put in your own money to keep the business going. If you decide to get out, you need to act fast.

"Debt can be built up very quickly and you need to be very proactive. If you are a director you have legal obligations to ensure that you are not recklessly building up debt. Get advice on this, as it can result in a trip to the courts,'' says McCarthy.

"If you are a sole trader it is your debt and you are personally liable and so need to keep it to a minimum for your sake and your family's."

Contact CAVA: (01) 6377218, through your local MABs office or email CAVA@char-teredaccountants.ie

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