People often call me with the phrase "temporary difficulties with cash". Sometimes it really is a gap: the money arrives in three weeks and the task is to get there. And sometimes the same phrase covers a business that has been financing its own losses out of its suppliers' pockets for a year and has simply not admitted it yet.
Telling one from the other takes an evening. You need five numbers — and honesty while working them out.
Number one: operating cash flow
Not profit, but the actual cash from core operations over the last twelve months. Profit can be a paper figure: goods shipped, revenue recognised, the report looks fine, and there is no money.
If operating cash flow is positive but there is nothing in the account, that is a gap — a question of timing. If it has been negative for two or three quarters in a row, the company is not earning money, it is spending other people's. That is no longer a gap.
Number two: the gap in days between receivables and payables
The calculation is simple. The average time it takes your customers to pay you, minus the average time in which you have to pay. If clients settle in sixty days and you owe your suppliers in thirty, then for thirty days you are lending to the market out of your own pocket. Multiply by daily revenue and you get the sum that is permanently frozen.
This number is treated by negotiation and contract work, not by borrowing. I have seen companies close the gap simply by shifting the payment terms on their three largest contracts.
Number three: the share of overdue payables
Take the whole debt owed to suppliers and work out what part of it is more than thirty days overdue. Up to ten per cent is a working situation. A third or more means the company is already living in a mode of choosing who gets paid today.
Count debts to the budget and to employees here as well. Those two are more dangerous than the rest: they give grounds for procedures to be started from outside, and for the manager's personal liability.
Number four: cover for current payments
Add up the mandatory payments for the next three months: loans, rent, wages, taxes. Compare that with the money in the accounts plus the receipts that are real rather than hoped for over the same period.
A ratio below one means that on current terms you do not make it through the quarter. That is the moment when options still exist, but their number shrinks every week.
Number five: the margin above break-even
How far revenue can fall before you go into the red. It is calculated through the share of fixed costs and the contribution margin.
A margin of five to ten per cent means the company is living with no right to a mistake: losing one client or one late payment knocks it off balance. Such a business is formally profitable, but it is run manually and collapses at any external event.
What to do in the first two weeks
If the numbers say it is a gap, build a payment calendar for thirteen weeks, week by week rather than by month. Negotiate a shift in dates where the relationship is a long one: a supplier will almost always prefer an instalment plan to litigation.
If it is a crisis, the order is different. First you work out what the company is worth alive and what a piecemeal sale would bring: that figure decides what is worth fighting for at all. Then you separate the lines of business that generate cash from the ones that consume it. And only after that do you go to the creditors — with a calculation rather than a request.
Going to creditors without numbers is the worst thing you can do. The first question will be what you intend to pay from, and having no answer moves the conversation onto enforcement.
A separate word on time limits. Where it is clear that not everyone can be paid, the manager has one month to file for insolvency. Missing that deadline is a direct ground for personal liability for the debts that arise afterwards. This is the case where delay costs more than an unpleasant decision.
How I help
I work these numbers through together with the owner and say plainly what I see: whether it is a gap or a crisis, and which options are left. After that come negotiations with creditors, if they are needed, and valuation of the company where a sale of a stake or of the whole business is on the table.
Legal services in these matters I provide through Kovalev & Partners LLC — kovalev.moscow. Advice on the value of a business is not valuation activity within the meaning of Federal Law No. 135-FZ, and as a mediator I do not advise one side of a dispute.
I state the price range in my first reply, before the work begins.
