Is your business viable? Will it remain viable in future?

Assessing if a business is viable (or can return to viability) is a difficult and time-consuming task and the keys to a successful return to viability (turnaround) are to have sufficient?insight?to identify the cause of any problems challenging the viability, the?resources?to implement the changes to business that may be required?and the time?for the business changes to take effect.

We define viability as:

·???????Positive cash flow from operations;

·???????Positive earnings; and

·???????Sustainable future growth.

Insight

Having adequate financial records that accurately record the past performance of the business is key to being able to generate the insight into the drivers of revenue and margins. An evaluation of these criteria involves considering the suite of products and services provided, pricing structure, relative competitive advantage, and supplier arrangements.

In addition, a management evaluation, overhead costs review, a consideration of key contractual agreements and an assessment of balance sheet strength, rounds off a review necessary to give adequate?insight?into the reasons for current performance.?

Resources

Creating the change necessary for a successful return to viability will often result in additional costs that need to be met.?

For this reason, the organisation involved in transformation must have sufficient balance sheet and cash headroom?resources?to fund the cost of change.

Time?

Whilst change may be easy to identify, the incremental improvements in performance will take?time?to compound into noticeable and sustainable improvements in cashflow, profit and growth.

In most cases a turnaround takes good amounts of?insight, resources and time, and its therefore important that each of these elements are present for a turnaround to be successful.?

There are limited?resources and time?available when business is on stop supply with key creditors and struggling to pay wages when a viability assessment is sought. As always, we encourage directors to be vigilant in their oversight of financial performance and take early advice when signs of underperformance first appear.

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