Staying in the game

26/1/2009

Football clubs are facing similar challenges to any other company as cashflows become an increasing issue. For many clubs it is a challenge to survive from one year to the next. With the recession forcing fans to cut back on games, players wages going ever upwards and the credit crunch continuing to stifle the banks, what can clubs do to better manage their business and cashflows.

Stephen Fern, Director at LC Corporate Strategies, the business turnaround specialist, looks at how proactively managing cashflow, including VAT and PAYE arrears, can help to reduce the debt burden.

Similar to any business, there are a number of clear warning signs that a club is heading into financial difficulty. Clubs must be on the look out for these, particularly in recessionary times when problems have a habit of escalating rapidly. Signs that the club could be heading for trouble include:

Gaps in financial information and slipping budgetary controls
Loss of sponsorship revenue
Spiralling wages
Increasing overdraft
Deferred or delayed VAT and PAYE payments
Dependence on television income
Reducing season ticket holders
Disputes among directors and senior managers
Deteriorating relationship with funders

These can all be exacerbated by poor performance on the pitch.

Clubs when confronted with these challenges can spread themselves too thinly, ‘fire fighting' in a bid to resolve the club's current predicament. This can result in unresolved issues escalating and cause the stakeholders of the business, including banks and other funders, to become uncertain about their position.

Difficult though it may be, clubs must try and take a step back from the coal face. There are immediate actions that can be taken to alleviate some of the pressure. Firstly, cash flow controls need to be tightened and if an arrangement with a funder exists, be it a bank or an asset-based lender, it is far better to confront financial performance issues rather than wait until you are unable to pay them. It is also wise to solicit the expertise of a turnaround professional. This is often less daunting than approaching a funding partner for advice, and they will be able to go through the options available to the business.

Each club is different, but options could include; negotiating a new funding package, installing an interim turnaround manager, providing managerial support to the company's existing finance function, compiling financial documents on the company's behalf or even rescheduling mounting VAT or PAYE payments. We have many years experience working with HM Revenue & Customs to help troubled businesses restructure VAT and PAYE payments through a time-to-pay arrangement. By ringfencing the VAT and PAYE arrears, it eases a club cash flow burden and can prevent a football club going through a formal insolvency that would result in large point deductions and the potential of relegation. This could put the future of any club in serious jeopardy.

The key for any club is to confront problems head on and seek advice as early as possible.

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