You don’t often see cash-flow on a company’s map of key risks.  That is because the map shows the net risk position, and one area that is usually very well controlled is cash.  Forecasting and monitoring of cash-flow together with regular bank reconciliations and follow-up of reconciling items usually keeps this off the high risk list.  The gross risk around cash-flow is, however, usually very high.  Whether or not your company is profitable, if cash-flow risk crystallises, your company is dead.

Last September, Jamie Oliver was filming with actress Liv Tyler for a Channel 4 programme (they were doing Liv’s signature prawn dumplings on Southend pier) when he got a call on his mobile.  Jamie’s Italian was about to go bust.  It needed a cash injection in the next 2 hours or that was it.  Jamie Oliver managed to get £7.5m from his personal accounts into Jamie’s Italian within the two hours.  That was followed up by £5.2m, and then also a £37m loan from HSBC.  And still they had to go into a voluntary arrangement, close a load of restaurants, lay off 600 staff, and not pay a bunch of suppliers.

In an interview with the FT magazine, JO said that he didn’t understand what had happened.  A variety of causes have been suggested: they expanded too fast and a lot of the locations were poorly chosen, costs had risen since the Brexit vote, competition in the mid-market is tough, the national living wage had also added to costs.  But there was no indication of how they managed and controlled cash-flow, nor what they had learned.  You have got to think that they didn’t understand the risk, and had little actual control in place.

Source:   FT Weekend magazine

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