What keeps retailers up at night?

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Irish TV presenter Lorraine Keane at the Forty Foot in Dublin’s Sandycove (Photo : Justin Farrelly)

Over the past 12 months, the confluence of several major economic factors including eroding consumer confidence and spending power has severely impacted earnings for all retailers



14 July 2009

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With earnings plummeting, stores closing and the number of receiverships and liquidations rising, economic conditions are proving the chief risk for retailers as we head into the final six months of 2009.

As advisors to a wide range of retailers throughout the country, we are hearing consistent messages from our retail clients. While everyone accepts and acknowledges the national and international economic factors that plague retail, it is interesting to observe that many retailers are feeling hardest hit by both their main supplier and banking partner when it comes to keeping indebtedness a distant worry.

The top 10 concerns mentioned by retailers

1.    lack of banking flexibility
2.    overdraft/working capital facilities diminishing
3.    aggressive attitude of suppliers on trade terms and payments
4.    indebtedness
5.    impact on personal guarantees and family home
6.    impact of new government levies on spending power
7.    risk of revenue investigation as Revenue Commissioner receipts fall
8.    increased competition in the sector
9.    general economic conditions
10.  staff costs

There is a consistent message being delivered here: it’s all about cashflow, cashflow and cashflow.

To deliver acceptable cash flow management, retailers need to go back to basics and start to think about how to manage the business more around cash. There are four key areas that form the foundation of improved cash flow management:

  • accurate cash flow forecasting and monitoring
  • accurate and regular management information
  • difficult decisions on cost cutting not delayed
  • clear roles, responsibilities and ownership of cash management

Indeed the current difficult times faced by retailers often illuminates and exacerbates existing problems with a business, such as poor cost control and an over-emphasis on profitability over cashflows.

Retailers that position themselves effectively now will not only survive, but they will also have a lean and efficient business model to take advantage of better economic times.

Act early

Signed personal guarantees (often in cases they are joint and several personal guarantees) given to your bank or to your key supplier are distressingly, for many retailers, an agenda item for discussions with these key business partners. It is essential that debt restructuring with your bank and suppliers is considered at an early stage to give all stakeholders an opportunity to help your business get through uncertain and difficult times.

Company directors also have added responsibilities in times of potential business difficulties. Part 7 of the Companies Act 1963 sets out directors obligations in relation to receivership and the 1990 Companies Amendment Act deals with examinership. As directors you need to be aware of your statutory duty you owe to the company not to trade recklessly and of your potential liability for the debts of the company if you do so.

Provision 135 of the Companies Act 1993 states that a director must not:

"Cause or allow to the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors."

Independent legal advice should also be sought without delay to determine the appropriate course of action for a company and you as a director if you have insolvency concerns.

Work on improving cash flow

BDO Simpson Xavier’s Retail division works with retailers to improve their cash flows in order to help stabilise monthly and weekly cash flows, maintain banking relationships and key supplier relationships.

Our involvement can help retailers preserve and generate cash, optimise working capital and enhance visibility over the level and timing of funding requirements. Whether a business is facing a cash flow crisis or simply wants to improve its working capital cycle and cash flow, we can help in many ways, including:


1.    implementing robust cash flow models and controls
2.    analysing immediate and medium term funding requirements
3.    stabilising cash flows and buying time for negotiation with all stakeholders, including banks, Revenue Commissioners and suppliers
4.    renegotiating repayment of trade debts with all suppliers, especially your main supplier
5.    renegotiating repayment of trade debts with all suppliers, especially your main supplier
6.    educating and embedding a cash culture within your store, especially with your management team


For more information visit www.bdo-sx.ie



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