During turbulent times, managing debt repayment is a priority concern for business owners.
There is no one size fits all solution to deal with this given the current challenges being faced in business today. Your game plan to navigate this challenge depends on a number of variables such as: the size of your business, external factors, your current debt repayment performance, the special clauses your financier has set out at the time of granting you the loan, the strength of your balance sheet and so on.
If you are a business owner with accounting records that are not up to date, then you are already on the backfoot. Most business owners have little awareness of the balance sheet health until a crisis hits and they need to get intimate with their numbers. Operating on a cash basis of accounting when you are a substantial business will catch you out during the storms.
Here are some practical steps to follow to get through debt repayment problems you might suddenly find yourself in or you foresee approaching:
- Be proactive: Have a game plan before you are asked for one.
- Get a completed set of your management accounts for the most recent month-end.
- Analyse your statement of financial position (ie. balance sheet) and gain clarity on the accounts that make up your assets and liabilities. This goes beyond just looking at your debtors and suppliers’ age analyses. Know what is in the balance sheet accounts. Question your team on this and ensure that any mis-postings or under/over provisions get updated.
- Update your results forecast and cash forecast tool for the next 3 months to create an awareness of the bigger picture. Make assumptions and document these for your financier to read it.
- Review your loan agreement to gain clarity on the financier’s special conditions/clauses which are to be met over and above the security you gave them for the loan.
- Contact your financier before they contact you. Ask to meet. Be transparent about your position. Financier’s love to see updated management accounts, cash forecasts and a proactive business owner. Put on the table a temporary extended payment plan taking into account the variables you and the rest of the world are dealing with at the moment. Get insight on what the financier’s stance is.
- Last but not least, do not exhaust your overdraft facility paying all your suppliers with no likelihood of cash coming in to timeously reduce the overdraft facility in use. If you engage in such activities your bank has the powers to stop your bank account and take all incoming funds for themselves first until the OD facility is paid off. This can cripple your business.
Strengthen your circle of genius with a finance expert well before your challenges surface. If you can see it coming, get help to prepare before it hits and you stand a good chance of survival.
RAJES GOVENDER CA(SA) - Rajes Govender is a finance team transformation consultant. To learning about her consulting service, go to www.fdvedanta.co.za for contact details.