What should smes do to not run the same luck of calzados beba?

When is the time for a financial restructuring in your company?
7 February 2019

The liquidation of CALZADOS BEBA generated a great impact in the last hours. Overcome by debt, the iconic shoe store in downtown Santiago had to end nearly five decades of operation.

The financial situation of this historic company is not an isolated event and is repeated in the sector of small and medium-sized companies, many of which fail to survive the restructuring process.

What should companies do when they see that the business is becoming unviable?

“It is essential to have the guidance and support in the management of obtaining resources for the company, in order to reconcile the company’s flows with its financing needs, be they short, medium or long term,” says Jaime García de la Huerta, general manager of FR Group Investment.

In this context, and when it is still 24 months before the 30-day payment law is fully in place, the corporate finance consulting firm expert in financial restructuring issues gives the following tips to keep the business afloat.

When the short-term debt is higher than the Accounts Receivable (CxC) plus inventories. In this scenario, we are possibly facing a financial mismatch, which means that a percentage of capital is being financed in the short term that should be paid in longer terms and with better rates.

When financial expenses show significant increases during two or more periods. If a company uses credit lines or has excessive short-term debt, it is recommended that it evaluate a financial restructuring of its liabilities.

After significant investment in machinery, to seek growth or meet new demand. Given this, the possibility of aligning the financing terms with the useful life of the equipment or machinery should be analyzed. For example, for machinery with a useful life of 10 years, it is recommended that its financing be extended for the same period.

Source: Pulso.cl See more