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’