By David J. Nissen, CPA/ABV, CVA, Managing Partner

Instability has become a new economic norm. Global supply chains continue to unravel. “The Great Resignation” has become a reality as flocks of workers exit employment leaving companies stranded. Meanwhile, inflation is constraining every penny of discretionary spending. Regardless of the reason, executives must continue to handle instability and its impact on the financial health of businesses.

When organizations are up against the threat of ceasing operations, PKF Advisory helps clients leverage the right solutions to avert insolvency. There is no doubt that -there is a vast array of options to stop the bleeding. And some organizations will require specialized, unique solutions. However, PKF Advisory shares some first-aid, life-saving measures businesses can use to mitigate the prospect of insolvency.

Strengthen Cash Inflows

Ensuring enough cash flow to keep operations afloat is paramount. Without enough cash to pay suppliers or shoulder expenses, organizations buckle and their viability suffers. For this reason, businesses must forecast cash flows, plug holes in cash availability and bolster reserves. They must try to accelerate receipts while minimizing or spreading out payments in-step with cash flow positions at certain points in time.

Using specific tactics, such as proactively invoicing customers, increases cash flows as it accelerates the receipt of cash in. Businesses must try to build more resilient supply chains to continue feeding the demand for the products and services they sell. Organizations should also continue supporting the customer experience (CX) so that revenues do not dip. By proactively supporting cash inflows, businesses have a better shot at accessing the cash needed to continue operating.

Be Smart About Debt

When businesses do not manage expenses – or when cash outflows surpass the revenue coming in the door – they risk failure. For that reason, they must manage expenses in a way that boosts viability. Aside from taking an inventory of large expenses and making necessary cuts, businesses should assess payment options with lenders. There may be opportunities to work with certain lenders to restructure payment terms. Alternatively, some arrangements may offer reduced payments by restructuring debt or altering payment timelines. There are also certain programs that offer immediate relief to businesses including Small Business Administration (SBA) programs that reduce the amount of debt owed so that an organization can recuperate from a position of loss. Leveraging debt payment options that are more feasible affords the organization a chance to recuperate and recover.

It is important that a business stays in contact with its lenders so that there are no surprises. With transparency, lenders are more apt to work out payment terms that can bring a lifeline to a suffering organization.

Lastly, unfavorable economic conditions require organizations to pivot. Undertaking specific life-saving measures to sustain viability is key. While not all organizations make it out of insolvency, increasing cash flows while managing expenses is at the center of protecting against insolvency. Organizations must also remain vigilant and stay abreast of strategies and programs – including the Coronavirus Aid, Relief and Economic Security (CARES) Act debt limit increase – that enable more organizations to leverage new programs for managing operations while remaining viable. When a business’ viability is on the line, every stone must be turned and every lifeline explored.

Contact

David J. Nissen, CPA/ABV, CVA
Managing Partner
Email: dnissen@pkfadvisory.com
Tel: 630-524-5274