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Managing cash flow is crucial to the financial health of sports clubs

As live sporting events in the UK begin to make a very welcome return and revenue streams start flowing again, Paul Atkinson, restructuring partner at specialist business advisory firm FRP, explains why sound cash flow management is essential for sports clubs as they continue to navigate the perils of the COVID-19 crisis.

For sports fans, there’s simply no substitute to watching your team perform live. The buzz of the crowd, banter with opposition fans and those glorious moments when you see your heroes score a goal, convert a try or putt a hole in one.

So, following a seemingly endless raft of cancellations and postponements due to the pandemic, it’s been great to see live sporting events making a triumphant re-emergence recently.

The crisis has meant that many sports clubs have faced the most daunting economic challenge in their trading history. Revenue streams have dried up, resulting in less cash flow, so now more than ever, it is essential for directors to have complete control and oversight of their club’s cash flow.

Simply put, cash flow is the heart of any sports club’s business affairs and whatever actions club directors take over the coming weeks and months, they need to be on top of things and make reasoned decisions – starting with the basics.

While it’s been encouraging to see the raft of support for businesses coming from both the government and the banks - in the form of 12-month business rates holidays for all retail, hospitality and leisure businesses, various grant funding initiatives, as well as the Coronavirus Business Interruption Loan Scheme, which offers loans for up to £5million - ultimately, sports clubs need to make sure that they have their cash flow in order.

Clubs should only take advantage of financial support with confidence that they have sufficient strength over the longer term that will allow them to repay. It’s important not to lose sight of the fact that government loans do not have a capped interest rate and that they are completely liable to pay them back.

We’re currently experiencing such an unprecedented and rapidly changing landscape that sports club directors need to ask themselves whether it’s right to take on further debt when there is no way of knowing when or if life will return to what it was before the crisis.

Even for those clubs that seem to be navigating the choppy waters with reasonable success, the tide can turn very quickly. Directors should evaluate their cash flow requirements and have a robust plan for various scenarios in the event of changes to their spectators or suppliers base. Contingencies in cash flow plans should also be made in case live ticketed events have to be cancelled at short notice in the event of another lockdown.

So, what should clubs be doing to help them avoid running into difficulties?

Sports clubs should aim to have a 13-week rolling cash flow plan in place. This allows the most important finances to be captured, such as weekly and monthly receipts and payments, quarterly VAT payments, as well as rent and interest charges. These are all significant payments and, by incorporating cycles into reporting, directors will be able to identify peaks and troughs over the period and ensure these can be planned for.

It’s advisable to start by mapping out a normal 13-week cashflow model, and then include additional adjustment lines to reflect the current impact of the COVID-19 pandemic on the business. This may include the deferring of receipts from customers and payments to suppliers, as well as the effects of the government measures that have been provided. And, of course, you can include VAT and PAYE deferrals, furlough staff payments and rent deferrals, which all helps to build a more accurate forecast.

In such a volatile market, it goes without saying that the forecast for the first few weeks will be the easiest to predict, and many club directors will find it difficult to make accurate predictions over the longer-term. And, yes, some assumptions will need to be made but it’s worth using historic data to help make the predictions as accurate as possible.

Poor cash flow can affect so much more than the financial performance of a sports club, leading to missed opportunities, poor relationships with suppliers and customers, and restricted growth. Whatever your size or stability, in a crisis such as this, all clubs need sound cash flow forecasting. Don’t leave it until the critical pinch-point - most likely to be at month-end, when rent and payroll outgoings are due – to get things in order.

About FRP

FRP Advisory Trading Limited, which is a whole owned subsidiary of FRP Advisory Group plc, provides a professional and considered approach to problem solving. With 56 partners and more than 380 staff operating from 18 offices across England and Scotland, FRP is one of the UK’s largest independent business advisory firms specialising in corporate restructuring, corporate finance, forensic services, pensions advisory and debt advisory. It has a strong reputation and track record for creating, preserving, and recovering value across a range of complex situations. Its advisers work at board level, with investors, lenders, government and regulatory bodies, plus other professionals and individuals requiring professional support. FRP provides a wide range of services, as well as specialist industry experience to enable the delivery of sector specific solutions. 

FRP is on hand to support businesses through the ongoing challenges of COVID-19. If you have any questions in relation to this article, please do not hesitate to contact FRP.