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Running any family business requires strategies that cover the full range from immediate cashflow management through to succession.
In recent years, a series of domestic and global market challenges have forced business owners to sharpen their focus on cashflow management.
The past 12 to 18 months have been very tough for everyone with rising interest rates across the Eurozone and inflation soaring globally, Ian Barrett, managing director, Restructuring in KPMG, points out.
“This has led to some businesses across virtually all sectors experiencing additional financial difficulty and simultaneous challenges on an unprecedented scale,” said Ian. “Over the past few years, many businesses managed to avoid insolvency with the help of government supports, tax warehousing and patient creditors.
“However, the environment has now changed, with supports having largely ended with tax warehousing due to end in May 2024. The worst thing you can do when such financial problems arise is to ignore them. Prudent business owners know the warning signs and take decisive action when needed.”
Companies should closely monitor their trading performance and financial position. Financial and cash flow projections should be regularly prepared and reviewed, which are stress tested for various adverse scenarios and adjusted based on any favourable/unfavourable events which have arisen since the projections were originally prepared.
“There needs to be a close focus on the working capital position of the company and can it be improved. For example, can debtors be collected quicker, can stock levels be reduced to more appropriate levels, along with a focus on ageing creditors and are credit terms manageable. Immediate steps should be taken to cut costs where possible to reduce losses and minimise exposure to creditors, although this might not always be appropriate depending on the circumstances for the business.”
Companies should assess their current asset and financial position to determine their debt financing requirements.
“In terms of arranging finance, there are various lenders in the Irish market lending to Irish businesses of various sizes, from the traditional pillar banks to newer alternative non-bank lenders who specialise in certain types of lending. “There are also several loan schemes available to various types of businesses through the Strategic Banking Corporation of Ireland (SCBI) or administered by Irish financial institutions.”
Succession planning is not something that can be put to one side, despite the temptation to do so and prioritise the urgent over the important, counsels Alan Bromell, tax partner and head of Private Enterprise in KPMG.
“Ultimately not dealing with it can erode long-term value. For privately owned businesses, it can have two elements: at a shareholder level (in particular for family-owned businesses) and at a management level.
“The latter is particularly important where the next generation of family owners are not involved in the business operations, and it is likely external talent is needed to drive the business performance into the future,” he says.
“The granting of an equity interest of some type to management is now a very common incentivisation or retention tool. Combining management and the next generation in the family as shareholders can bring complex commercial, legal and tax issues, and it is critical not to overcomplicate.
“Ultimately, if dealt with early and with the right attention, it can be a key driver in allowing a business to prosper and achieve its strategic ambitions, like growing through M&A. Conversely, if not addressed, it can cause stagnation and, in some cases, deterioration of a business.”
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