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
Ceres Risk 