In view of the recent bush fires and coronavirus (COVID-19) disruption to markets across the world, business owners need to reassess their short term and medium term restructuring needs. Unfortunately, many Australian businesses have had the double impact of the bushfires and the coronavirus disrupting the business supply chain and/or customers demand for their service and products. Accordingly, Madison Marcus’ Head of Restructuring, Gerard Breen, recommends that businesses should review their financial needs in the short and medium term and consider amongst other issues their financial need to restructure or obtain further working capital. The factors set out below are some of the issues which will need to be reviewed. Madison Marcus can assist you with this review and if necessary facilitate a restructure for your business.
Reforecast trading and cash flows:
Test and challenge all assumptions. Ensure trading and cash flow forecasts are integrated. Consider a downside scenario to understand actual/potential needs.
Review cash flow forecasts:
Some businesses’ cash flows are already being devastated as revenue evaporates. Review in detail cash flows for the next 3 to 6 months and identify what mitigating actions can be taken to preserve cash in the short/medium term.
Review your lending documents:
Understand the key terms, covenants, baskets of headroom and flexibility in your banking and finance documents.
Remain in contact with key stakeholders:
Businesses should communicate regularly with key stakeholders including their lenders and investors in order to retain their confidence and support.
Seek out additional sources of capital early:
Should cash flow forecasts suggest that liquidity is or will become an issue, assess options for raising funds including asset-based financing, RCF, distressed M&A and alternative financing options (through our funds network) and also tapping the equity markets.
Keep plans and options actively under review:
Sustainable financing is an iterative process.
Working capital management is likely to be challenging:
- Businesses impacted by lower demand may experience overstocking that could persist until production is reduced or demand picks up.
- Customers are likely to delay payments to preserve cash, whilst suppliers may be desperate to be paid for shipped/ordered goods.
- Non-impacted counterparties may offer early payment discounts or factoring opportunities.
Affected businesses should review their trading projections, expected cash flows and needs. Contact Gerard Breen, if you need assistance with restructuring your business or need working capital.