Business Insight 92 – Managing A Cash Flow Crisis (blog & vlog)

 

Let’s be honest: windows and doors are crushingly boring – nothing we had done in an advertising sense (however brilliantly art worked or filmed) could make up for the fact that they were windows.

Laughing babies were much more interesting.

So it was decided to create a campaign around laughing babies; auditions were arranged at the Boutwood’s house. All of our kids went to the same play group – everybody was invited to bring their little darlings around and hopefully they would laugh. Those with the best laugh would feature in the TV and press ads.

The competition was fierce, with mothers laying on the floor (out of the cameras view) and stretching up to where their kids were sitting and desperately tickling them in the most peculiar places, in the hope of them being selected. The outright winner was ‘Odd Job’, the pet name for Tiffany (the Boutwood’s very own daughter) who had a bright, natural, and raucous laugh. My lads got on the extras list!

It was our spring campaign and it was a resounding success. This was the first time since VAT was introduced, some 21 months before, that we had come up with such a winner. It was nothing to do with the product, however, only to do with the perceived ’something for nothing’ interest-free credit offer – and laughing babies. We had got our mojo back!

KPMG were getting into their stride and the numbers were looking horrific, so horrific they didn’t believe them themselves. My team of qualified accountants left one after the other (rats and sinking ships again); one was Mike Weatherly, who was later to become the MP for Hove. Leaving behind Malcolm Bridge, who was part-qualified, to fight the good fight. KPMG basically couldn’t understand how we were still trading with such a disastrous result building up, so bad that they didn’t want to disclose it until they were happy that they had nailed it. Our own management accounts had reported a loss before depreciation etc., but the balance sheet had remained solvent.

In the meantime, we were chasing cash wherever we could lay our hands on it. The bank would not let us go a penny over the limit and we were using the clearing system (3 days to clear a cheque) to defray creditor pressure; we basically needed to bank £20,000 a day to ensure the flow of cheques hitting our account would be cleared. The staff at Nat West Eastbourne were on our side, but orders from on high were to bounce anything over the £230,000 limit.

Our system was to write up the cheques and Carolyn Pettitt held on to them; those who screamed loudest or threatened the most got paid first.

When Malcolm was asked if he had raised a cheque, he could honestly say “yes”. “Had it been sent?” “Yes, it was in the system.” “Had it been sent, then?” “Yes.”

He didn’t think that he was lying, as he had sent them to Carolyn. If it got very serious then it was my job to calm the creditor down: I was always brutally honest, I would never commit to anything that I couldn’t deliver. I used to ask the supplier if they wanted me to lie to them? They didn’t. Don’t force me to, then. We’ll pay when we can pay, and I will phone them personally to let them know their cheque was on its way.

INSIGHT 92a:- It is a fact that regular suppliers who you owe a lot of money to, and who you have a good relationship with, will not send you bust. Occasional, small or one-off suppliers, however, are a completely different matter. One of the departing accountants had very nearly got us a County Court Judgement by ignoring a demand from a very small ‘one-off’ supplier. 

We just didn’t need 10,000 sq. ft. of offices anymore; we would all move onto the ground floor, and let out the middle and top floors. My fellow directors complained, but it was a fait accompli: we would go and mix in with the accounts, admin and sales staff on the ground floor.

Nobo Plc., an Eastbourne company that had successfully designed and produced notice boards for Britain and beyond, rented our top floor for their very much more successful board of directors. Pearl Assurance rented the middle floor for their regional office. We were now getting £28,000 rent and only one third of the rates bill. Only one third of the parking spaces as well. At least this time it was in an unrestricted street parking zone so no tickets.

We were having a sales force (still 60-strong) meeting at the Mansion Hotel in Eastbourne (we didn’t have the space in HQ anymore); it was going to be all about the success of the ‘Interest Free’ campaign and the announcing of more of the same to come. It was to be an upbeat and happy occasion.

I liked our meetings – our salesmen were a witty bunch and there used to be a lot of banter, and usually somebody was picked on to have a bit of fun with, quite often somebody called Chris Cheshire (the cousin of Martin and Eric). I got up to speak. The receptionist burst into the room and said I had to take a telephone call. I went out to reception.

It was Michael Pitts of KPMG: “Phil it’s very bad news, but we are now confident of our ground; you lost over £1 million to November 1985, you are technically bust to the tune of £400,000, and it (still) might get worse”. I felt sick. He carried on: “We still don’t know how you are trading, but I’m coming over this afternoon to discuss tactics”.

I went off to the toilet and spent 5 long minutes in a cubicle just trying to gather my thoughts. It was (obviously) important that I went back to the meeting and took up where I had left off. I just don’t know how I got through it, and long-term staff (that knew me well) noticed that I had changed. Some thought (it transpired later) that I had been told somebody close had died – they were right, it wasn’t a person though, it was the company.

Michael came over, and asked what did I want to do? I told him that I thought we had turned the corner: Bill’s ‘Crawley Odds’ and the ‘Interest Free’ campaign, plus the other structural changes meant that we could see ‘the wood for the trees’; and there was more that we could do, but we would need time, probably a couple of years. I asked him what the bank would do.

He thought that they would want to do their own audit, probably using another firm of accountants, but that was to be resisted with all vigour. It would almost certainly be the precursor to them shutting us down; it was just about having access to the information first hand, so as to assess the ‘real’ value of the intangibles, the order book and the dismantling of the business.

The good news was that they were 100% covered by our freeholds, so he suggested that we had Nick Redman (the audit manager for KPMG) work on secondment in our accounts department, to sort it out properly for the first time. This should give the bank comfort and they would accept his Management Accounts showing the (assumed) improved performance, and it would build their confidence as a result. One thing was for sure: they weren’t going to believe any figures we produced for them.

It was a mystery that we had survived round to May from the previous November – the period end reported in these awful figures – but survived we had. Obviously we were the masters of keeping our suppliers happy, whilst stretching our credit with them, and of course we benefited hugely from the constant flow of deposits on fresh retail sales orders – which was in fact THE miracle survival ingredient.

INSIGHT 92b:- KPMG had adjusted some of our asset valuations but not all, and definitely not the computerisation project; we were probably another £200,000 to the bad i.e. bust to the tune of £600,000.

 

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