Considering and learnings that apply in the wider corporate world

In adverse trading conditions, required liquidity can often increase beyond what is forecast as suppliers demand tighter terms and customer payments can slow.

• Do you have a robust and regularly updated short and medium term cash flow forecast, that is compared with actual trading and provides for a range of downside scenarios – approved by the Board and / or company management?
• Have you considered your strategy should any debt covenants be triggered and facilities become unavailable?
• Have you considered the liquidity impact of any margin calls on hedging / treasury positions?

Debt financing has become substantially more expensive and availability may come from alternative sources in the current climate.

• Are you facing a refinancing event in the next 24 months – if so, do you have a strategy that is clearly executable?
• Have you considered or enquired if your existing debt providers continue to have the appetite to provide financing?
• Are you aware of alternative sources of debt financing and have these been appropriately explored?
• Do you have forthcoming maturities or amortisation payments that will challenge your liquidity situation where it may be prudent to discuss an alternative route with lenders?
• Do you need to consider a ‘plan B’, such as a balance sheet restructuring, consensually or by way of a formal process (Bankruptcy Process and Framework) to ensure the company remains in control and maintains optionality?
• Is there any risk of breaching debt covenants and are you prepared for engagement with your lenders?
• Are you monitoring your debt covenants based on both on, and off, balance sheet debt and do you need to disclose any off-balance sheet debt to existing lenders / investors?
• Is funding from facilities being utilised properly? Are your short term facilities financing long term obligations?

• Are your treasury policies and procedures fit for purpose?
• Are deposits and banking facilities diverse enough to manage risk should a primary relationship not be available?
• Where would your medium term liquidity come from in a situation where your primary relationship is not available?
• As inflation, interest rates and commodity prices have varied, have you updated your hedging positions and strategy to reflect risk appetite?

Suppliers, customers, and other stakeholders often rely on the quality of the balance sheet as one of the key financial data points when assessing financial resilience (and willingness to engage/continue engaging).

• Does your dividend policy remain appropriate and provide sufficient room and runway to manoeuvre?
• Do you need to raise equity to improve resilience?
• If you have upcoming end of service benefit obligations, have you considered how your balance sheet decisions interact with your duties towards settling these?
• In situations where there is either an existing, or risk of a net liability position, or where there is a risk that the business may not be able to pay debts as they fall due, are you taking appropriate advice around directors’ duties?
• Are you monitoring your contingent liabilities and are they in line with the demands of the business?

Loss of credit insurance could lead to a request for a material change in credit terms from your suppliers.

• Are you aware of the availability of credit insurance over your business to your suppliers?
• How would you manage a change in availability based on trading performance, insurers appetite in your sector, or adverse rumour?
• Do your banking facilities require credit insurance cover on your customers? How would the loss of credit rating for a key customer impact your liquidity if facilities became restricted?

A sudden loss of a key supplier could lead to costly delays in provision of your own goods and services, overruns, claims, or loss of key contracts and customer relationships.

• Do you understand your critical suppliers, including their financial and operational resilience?
• What is your plan should a risk of failure in the supply chain arise – alternative supplier/provide short term support/rescue supplier? – Are you prepared for the structuring of any support?

Being able to find and search all the details of your counterparties and contracts help with risk management, efficiency, and is critical in a crisis.

• Are all your customer, supplier and other contracts held centrally on an easily accessible and searchable platform?

• Do you have a crisis or contingency plan in place? Is it fit for purpose, with a reporting and communications strategy, and key individuals (and substitutes if required)? Does it contain contacts for specialists and advisors as the situation requires? Does it contain a list of key questions and points that need answering at T0?

In a crisis, operational volumes in certain parts of the business may be pushed beyond capacity, additional calls may be received from customers or suppliers, additional information may need to be processed, finance, operational, or legal teams may need additional support. Existing teams may not be available.

• Have you considered where additional resource, support, or surge capacity would come from to deliver critical functions?
• How can I use digital tools most effectively in such a situation?

• Has the company recently evaluated its investor, supplier, customer and other stakeholder communication plans in the event of adverse events, rumour or poor performance? Do the scenarios considered adequately cover current risks, including the impact of social media?

• Is there a succession plan in place for family-owned businesses? Has this plan been discussed with key stakeholders (management, lenders etc.) and is there a plan in place to transition to new shareholders, if required?

Peak inflation may be behind us, the labour market is softening in places and supply chains are becoming more consistent.

• Are you finding that you have over-invested in your human capital – do you need to make plans to adjust this?
• Have you considered where the balance of supply and demand may now have tipped in your favour and contracts could be renegotiated?
• Have you got a view of excess cost that may be able to be removed from the business?

In the higher interest rate and capital cost environment cash released from working capital can be a ‘free’ contribution to your liquidity profile.

• Have you reviewed your working capital efficiency – is it optimised?
• Are there any quick wins that can be achieved to alleviate any immediate liquidity pressures?

Poor performing or non-strategic divisions can be a drag on the value of your business, consume working capital and require excessive management time.

• Have you considered tactical, rapid, divestments of non performing or non core divisions and the release of value, working capital and time this could create?