In my line of work whenever I'm introduced to support the directors or management of a SME striving to turn around their business, the suite of solutions being contemplated will encompass one or more of the following:
(a) "New money" or increased borrowing request to existing lenders;
(b) Re-finance of existing borrowing facilities which envisages the repayment of the incumbent funding arrangement via replacement (and increased) borrowing facilities from a new lender. This could be to help with working capital challenges following a period of trading losses or to fund a strategic acquisition / new product development;
(c) Request for additional lending from an existing lender to fund a cost reduction program or divest a non-core division / product line; or
(d) The crafting and implementation of a turnaround plan with hands on leadership support from an experienced turnaround practitioner.
Regardless of which of the above scenarios I've been confronted with, my starting point is almost always to quickly establish how robust or otherwise the financial control environment is. How up to date are the management accounts?; and do they show an accurate picture of the business' financial position?
From my experience, particularly at the smaller end of the SME space, the response to the above questions more often than not will be "we are a small business and to keep costs down we only do accounts at year end". In turn I always quickly suggest the engagement of a competent local accountant to help create a set of complete and accurate historic monthly management accounts as far back as is practicable (12 to 24 months as a minimum if possible). This is a necessary precursor to the preparation of forward looking trading projections anchored to a realistic opening position.
Without this accurate and reliable information platform, a business' key financial stakeholders will be unable and unwilling (!) to provide any meaningful support to the turnaround effort, predominantly for the following reasons:
(a) Lack of monthly management accounts for any business (however small) in my opinion, can mean that the business is "flying blind", especially during periods of uncertainty or stress. This can lead to incorrect business decisions being taken that risks exposing existing and new financial stakeholders to increased risk of financial loss; and
(b) Any request by a business for additional funding could turn out to be insufficient to meet the business' needs if based on inaccurate financial information. Nothing will kill the credibility of a management team quicker than going back to the business' lenders to say "we got it wrong and need more money!"
I appreciate the need for SMEs of a certain size to sensibly scale the support infrastructure for their business as they grow (I'm not suggesting for example, that a £2m turnover business engage one of the big 4 accounting firms). However based on my experience, the benefit of having a competent accountant to prepare monthly management accounts so that the business' owners are readily able to know and articulate the financial position of the business, far outweighs the costs of what is a relatively small proportion of total overheads.
To conclude I would humbly advise - "don't be penny wise and pound foolish" when it comes to considering whether it's worth incurring that monthly accountant cost.
Should you wish to discuss any of the points above or explore how Quantuma LLP can potentially support your business please feel free to contact me (details below):
Director – Advisory & Restructuring
Mobile: +44 (0)7469859111