TOOL 2.1
| Stage One – Cash Concern • Liquidity under pressure – management make cash management a priority • Expenses reduced – salaries cut, bonuses cancelled, overhead controls initiated or tightened, R&D stopped • Asset management improved, A/R collection tightened, Inventory reduced, A/P’s slowed • Capex reduced/cancelled • Prices cut to move old inventory | Exhibited by Client? |
| Stage Two – Cash Crunch • Cash management is top priority • Cash has to be generated to keep current operations running • Expenses cut again • Capex eliminated altogether • Employees laid off • Morale declines • Unprofitable products/services eliminated • Non-essential assets sold • Some creditors only partly paid, others stretched further • Borrower seeks additional debt • New credit sources sought • Assets are refinanced • Product quality suffers, returns increase • Maintenance of fixed assets delayed or eliminated • New financial management brought in or consultants are appointed. • Dividends cut • Covenants breached | Exhibited by Client? |
| Stage Three – Cash Crisis • Borrower now in a “do or die” situation – drastic measures taken to survive • Additional assets sold • Further layoffs – including management • Morale at rock bottom • Key employees resign • Factories closed • Top management changes • Bank facilities show excesses • Loan payments become past due • Covenants breached again – default becomes inevitable • Taxes not paid | Exhibited by Client? |
