Shortening the road to recovery

The past 24 months have truly tested the resilience of the licensed trade. Major dislocations in financial markets across the globe have had a trickle-down effect to even the most beloved of local pubs.

Across the board, the most iconic household brands and countless smaller establishments have found themselves under extreme pressure and facing the prospect of insolvency.

But throughout the period, the business turnaround units in UK banks have played vital roles in providing the managerial and financial support to keep organisations operational and retaining value.

As some order appears to return to the world's economies, and the volume and ferocity of corporate insolvencies seems to be decreasing, our experience from previous recessions tells us that emerging from a recession intact can be just as difficult as surviving it.

Indeed, the UK Insolvency Service recently reported a 12.8 per cent decrease in administrations in the fourth quarter of 2009 compared with the previous quarter, and a 39.7 per cent decrease in other corporate insolvencies (including administrations) in the same period compared with the previous year.

Insolvency lag

Despite this overall fall in insolvencies, the number during 2010 is likely to remain high. The 'insolvency lag' experienced in previous recessions means they will not drop away to historic levels until some time after economic growth returns. Licensees and banks will have to go to more sophisticated efforts to keep companies trading, more so than during any recession in recent decades.

It may seem obvious, but maintaining an open dialogue with your bank is critical to ensuring you receive the necessary support. For many, trading has not lived up to expectations and this may result in a breach of banking covenants, or worse, an inability to repay debt.

The key is to start talking early to key stakeholders - including the bank. This allows you the time and flexibility to adjust or change your strategy, and more importantly, to consult with specialist advisors who can review your business and propose options in time for them to still have an effect.

Businesses don't fail because they are unprofitable, they fail because they run out of cash. The old adage 'cash is king' has never been more true. As businesses pursue new opportunities coming out of the recession, they may find themselves strapped for cash.

Forecasting and managing a stable cashflow will be vital in ensuring an organisation is healthy enough and in a position to capitalise on an increase in demand. A credible cashflow will also help your bank understand where the pressure points are and enable it to work with you to potentially alleviate the situation.

Monitor that cash

In addition to monitoring cashflow, licensees can look for ways to generate an increase in cash through reviewing their working capital cycle and maintaining adequate stock levels. A regular review of fixed and variable costs may also be required to ensure cashflow is robust enough to cope with an increase in business and also to check you haven't missed an opportunity to minimise your outgoings.

Many may have made the necessary adjustments to their management teams to cope with the downturn.

However, a review of the strength of their leadership team may now be necessary to ensure they have the correct skills and support in the right areas of the business.

Taking on extra resources and costs at a challenging time may not seem the most appropriate course of action, but it could make all the difference between success and failure in the post-recession trading environment.

What is very handy in managing against insolvency is to work to a set of five to 10 Key Performance Indicators (KPIs), consistently gauging performance against them on a daily or weekly basis. This will help give an indication of whether a business is in good health and help foresee any potential issues.

Although the future is looking brighter than 24 months ago, licensees should ensure they've forecast a downside scenario and that all stakeholders are in agreement as to the course of action, should 'Plan A' not prove feasible.

Collaborate for support

Working collaboratively with your bank's business support unit early on will ensure your organisation has as many options available to it as possible. The success of our business support team is built upon early identification of worrying and working closely with the directors of businesses to understand what has gone wrong and why.

By working together, a programme can be developed to help bring the business back to health and retain the value of an organisation facing difficulties.

Bianca Dexter-Burnell is head of licensed trade at Barclays​