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Financial Matters: What keeps businesses afloat?

Close Invoice Finance’s David Butler looks at the lessons owner managers should have learned
Financial Matters: What keeps businesses afloat?
THE last decade! What do we remember it for? England's World Cup win, albeit at rugby? The arrival of iconic gadgets such as the iPod or the Blackberry? Or the growing number of personal bankruptcies and corporate insolvencies in the UK?

Each year for the last 10 years, Close Invoice Finance has looked closely at debt and finance management in UK businesses. The conclusion of our findings forms the basis of a sound lesson in survival for today's owner managers.

Owner managers blame business failure on a variety of causes. But what our research has found is that poor management is very often the primary cause of corporate collapse.

So many companies have no clear steer on income and outgoings, on the most cost-effective ways to fund debt and even of the importance of producing regular monthly accounts. As a result, they end up as a statistic.

Of course, there are plenty of businesses out there which have outstanding management and are genuine victims of the economic cycle. The ability of an owner manager to recognise and deal with their financial problems in a timely and effective manner is what proves, time and time again, to be the governing factor for corporate survival.

The good news is that during the last decade, the number of insolvent businesses that have been preserved and turned around using such rescue procedures as CVAs, administrative receiverships and administrations has grown significantly.

Using ever more innovative funding packages, supported by sweeping legislative reforms, the government, the insolvency profession and companies like ourselves are continuing the drive towards saving businesses.

There is, however, at least one major fly in the ointment left to deal with. The Pensions Act is making it nigh-on-impossible to rescue certain companies.

The government must take greater action to support businesses in this predicament. In the meantime, creative cashflow solutions and their proactive use will remain key factors for corporate survival during this next decade.
1 March 2006

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