If the banks and lenders reduce the credit lines of the working capital loan when sales slump, this can quickly lead to insolvency or over-indebtedness . But what can SMEs do in such a situation?
Our expert says: focus on transparency right from the start, define clear goals and take the following steps.
1. Check whether it makes sense to continue the business.
First of all, you should check whether it makes sense to continue the business and, if so, how the illiquidity can be remedied. With a Quick Check, you can quickly determine which measures could be suitable. For example
- the addition of further equity
- taking out a special loan, for example a short-term microloan
- the rescheduling of debt, i.e. the conversion of short-term loans into long-term loans
- a consistent dunning system
otherwise, insolvency or over-indebtedness would be a insolvency ground which would have to result in an insolvency petition . A decision on the company's ability to continue as a going concern is made on the basis of the relevant documents and evidence that you must compile.
At this point, you should - especially as an SME - consider seeking professional support, not least in order to fulfill the requirement of the StaRUG for early crisis detection. In any case, a quick check provides orientation and clarity after a very short time.
2. Draw up a liquidity plan.
If it turns out that the company is neither insolvent nor overindebted, but that it makes sense to continue as a going concern, the next step is to draw up a precise liquidity plan. The liquidity plan compares all incoming and outgoing payments within a certain planning period, making it possible to identify possible liquidity risks in advance. In particular, it is possible to determine when and in what amount an overdraft facility is likely to be required.
There are no rules for calculating the expected amount of the overdraft facility that apply equally to all SMEs. After all, the agreed payment terms and the payment behavior of customers and suppliers differ from company to company. In the manufacturing industry in particular, there are considerable differences between income and expenditure, as the service is often only due at a later date, whereas the ongoing charges and upfront costs are due immediately. However, key figures such as turnover, stock of goods, the amount of receivables from customers, the size of trade payables and the bank account balance always play a certain role.
In addition, professional support is useful at the latest when drawing up the liquidity plan or calculating the amount of the required overdraft facility and the actual funds required in order to be able to present reliable figures to the house bank or other lenders in a convincing manner.
3. Develop a restructuring plan.
The calculation of the required amount of the overdraft facility on the basis of the liquidity plan is followed by the development of a restructuring plan including a financial plan and business plan. The first step is to clarify:
- what the future business model should actually look like?
Based on this, a continuation plan or a new business plan should be created, which also describes the restructuring measures to be implemented. Further questions arise in this context, such as:
- Do creditors need to be involved in the plan?
- Which creditors are preferential, if any?
- Is it possible to encroach on third-party collateral?
- Will special contract termination rights be achieved with a restructuring?
- Who secures the interim financial requirements?
4. Secure the capital requirements.
Restructuring measures aimed at stabilizing the company and sustainably overcoming the liquidity crisis may include investments in existing business areas or in company expansions or in the development of new business areas, which should lead to more sales.
This naturally costs money.
You should therefore determine the corresponding capital requirements as precisely as possible and then procure them on the capital market, for example via your house bank or via the KfWF loans. If you fail to finance these restructuring measures, the company's realignment will get stuck in the conception phase.
5. Implement the restructuring measures.
Once you have raised the capital and secured the financing, you can move on to the fifth and final step of implementing the restructuring plan with the planned measures. As an SME, you should also seriously consider appointing a Chief Restructuring Officer or Chief Restructuring Officer (CRO) at this point. This is because a CRO who comes from outside is generally better at implementing painful and unpopular measures than someone who is personally involved in the company's structures.
In any case, the mandate should be precisely defined in advance in order to clarify mutual expectations. It is not uncommon for there not to be enough time to tackle the first four steps thoroughly. Then, as part of the first quick check, which examines the company's ability to continue as a going concern, an action plan with the necessary measures and their implementation timetable must be drawn up with the involvement of all decision-makers.
After all, the decisive factor for the success of a restructuring is a plan that is both clear and quickly drawn up. Otherwise, there is a risk that further funds will be wasted in the meantime and the reorganization of the company will end in insolvency.
