Liquidity management is a function that enables a business to meet their financial obligations through either cash flow, funding activities, and/or capital management, and grow.

The downfall of retailer, Max Brenner

Max Brenner

Max Brenner

In 2016, an expensive overhaul of Max Brenner’s head office and a fall in turnover hit cash flow so hard that the company stopped paying staff superannuation for six months.

In 2018, turnover continued to fall to $41.3 million and Max Brenner operated at a net loss of $5 million for that financial year.

Staff of the chain are estimated to be owed a combined $5.8 million, including $2.7 million for 250 staff made redundant.

Administrators estimate creditors are owed $33 million. The company also owes $1.86 million in superannuation payments and $2.5 million in GST and pay-as-you-go requirements.

Reading the signals

There were a number of red flags that Max Brenner chose to ignore:

  1. Continued rapid growth, together with a lack of capital, stretched capital expenditure with limited consideration of projected profits in a competitive retail environment
  2. An office renovation hit cash flow so hard they were unable to pay staff superannuation
  3. They were unable to pay suppliers.

Eventually, an application was issued by Sunstate Ceilings which caused the downfall of the retail chain.

Better practices

Before undertaking any substantial renovation or embarking on extensive growth, it would have been prudent for Max Brenner to undertake scenario planning or strategic forecasting to understand the financial ramifications of their investment, and the implications it would have on cash flow and other parts of their business.

The appointment of experienced business advisor’s would have helped provide the skills and strategic insights required to plan and forecast likely business impacts, as well as ensure all compliance obligations continue to be met.

These advisors are well placed to perform a review of the company position and structure to provide the recommendations to help secure the longer-term financial health and sustainability of the business.

The business should have used a 3-way forecast model to stress test scenarios before undertaking any critical decisions such as investing in extensive growth and renovations. When planning these scenarios, firstly the business should have looked at the base level variables such as wages, PAYG, tax and any other obligatory payments. From this base level, the business would have had foresight on the cash that was/wasn’t available to invest in growth.

Max Brenner should have spoken to a professional for advice on how they could restructure certain areas of the business to determine the greatest protection and return.

The PASS 4 step crisis management framework

These four steps will help you identify and maintain a minimum viable operating model and determine where to slow (or even stop) the execution of projects to help you focus your efforts and get you through a crisis.
The PASS 4 step crisis management framework

The PASS 4 step crisis management framework

 

The bridge to the new normal

You have established the fundamentals of your new normal, now is the time to assemble a different set of resources with the strategic task of planning for the future and ultimate growth.

Navigating your changing business landscape

Meet the specialists

Finance specialist
Brad Spencer

Brad’s career in the banking and finance industry spans more than three decades. During that time, he has had a variety of roles across Australia and gained broad experience in providing all types of lending solutions from personal lending to equipment finance, business & working capital solutions, and property investment & development funding.

Before joining Ledge, Brad was a relationship manager with one of the major banks, and he has since added to his wide financial experience by completing Certificate IV in Finance and Mortgage Broking.

M: 0481 196 496
E: brad@ledge.com.au

Connect with Brad on LinkedIn

Legal specialist
Murray N. Thornhill

Murray is an experienced, skilled and efficient commercial dispute resolution lawyer. He leads and co-ordinates our litigation, commercial and property teams – Murray’s practice focuses on dispute resolution for SME’s and individuals in construction, insolvency, employment, and trusts and estate litigation.

He has represented clients in most Courts and tribunals in WA and the Federal and High Courts, and has also advised substantial charities, school associations, principals, board members and other non-profit bodies on their unique legal challenges. He is also an experienced presenter & educator on a range of legal issues to industry and to professional and government bodies. Murray is a Notary Public with experience in all aspects of notary work.

P: 08 9322 1966
E: murray.thornhill@hhg.com.au

Connect with Murray on LinkedIn

Insurance specialist
Tracey Thorn

Tracey Thorn has over 20 years’ experience in the insurance industry. She has a comprehensive understanding of the insurance landscape and works with clients to provide bespoke insurance structures, strategies and risk management solutions for their businesses.

With the ability to negotiate complex claims, manage business interruption reviews and conduct contract reviews, Tracey’s depth of knowledge has enabled her to cultivate strong and trusted relationships with her clients. .

M: 0481 293 889
E: traceyt@knightcorp.net.au

Connect with Tracey on LinkedIn

Accounting specialist
Ross Prosper

Ross’s expertise in tax and business advisory spans the spectrum of accounting, business structuring, superannuation and complex tax advice. He works with a broad range of clients including family owned small to medium enterprises and large corporate groups.

When providing solutions to clients, Ross takes a “big picture” view and ensures that structuring is thoroughly considered from the outset. By considering the implications that structuring decisions will have at various points in a business’s life cycle – particularly at the point at which a business will cease operating, be sold, or passed onto the next generation – Ross offers clients a holistic perspective that has helped many to recognise potential opportunities.

M: 0407 440 535
E: rprosper@perth.bentleys.com.au

Connect with Ross on LinkedIn

Join in the conversation

Navigating Your Changing Business Landscape: Finding Opportunity in the current Climate is a series presented by Ledge Finance, HHG Legal Group, Knightcorp Insurance Brokers and Bentleys that aims to educate and provide practical strategies to soften the financial impact of the pandemic as you begin to revive your business. Collectively we will discuss ways to minimise risk and find opportunities as you navigate the changing business landscape that is the post COVID-19 world.

How will Coronavirus impact on the Budget? And what can you do to minimise