(This post first appeared on Quora Germany).

I was CFO in a real estate company and just on holiday when I received a message from one of our portfolio companies:
URGENT - Turkish tax office demands EUR 25m in back taxes (EUR 12.5m regular and EUR 12.5m penalty). Claim unfounded. Call an urgent shareholders' meeting!

This was completely unexpected and not planned in any way. I choose this example because the amount of the claim was in no way covered by our Cash position at the time. For small companies, amounts of EUR 25,000 can already lead to comparable situations.

Without going into the example any further, here are my thoughts on the question:

(A) In a situation like this, the cash flow plan (Cash flow plan) is your best friend.

We prefer the direct cash flow calculation. This is divided into three rough groups: (1) operating cash flow, (2) cash flow from investments and (3) cash flow from financing. The three groups are also the fields of action. Cool, isn't it?

(1) Operating cash flow

Check every cash-in position for risks or optimisation of incoming payments. A common optimisation in this context is, for example, factoring. Christian Kedzierski has listed possibilities quite comprehensively in his answer. In the case of cash out positions, check whether payments can be made at a later date.

(2) Cash flow from investments

This is the time to stop any investment - if possible - and postpone it to a later date AND to check whether assets such as land etc. can be sold. (usually the last resort)

(3) Cash flow from financing

The glimmer of hope on the horizon. External money - from banks or the shareholders / investors! The Cashflow Plan now unfolds its full potential. Not only can you give an external financier an accurate overview of the state of the business, but you also have a super professional action package to present at the same time (see points 1 and 2).

(B) Communication with stakeholders

This is important now! Liquidity bottlenecks can always occur and are usually not a sign of failure. They become a failure if they are not dealt with cleanly and objectively. The second path after objectifying the problem (see A) is therefore the path to all important stakeholders of the company. These are usually the owners/investors and the company's bank. The cash flow plan and the documentation of possible actions now serve as a basis for discussion. Super professional!

(C) Check legal consequences (have them checked)

However, an unexpected financial bottleneck can also lead to insolvency. The managing director must always check whether the so-called insolvency facts of insolvency exist. Insolvency exists if the company is not in a position to pay its due liabilities and is not expected to be able to procure the necessary funds as soon as possible. The German Federal Court of Justice has defined the period as a maximum of three (!) weeks. Insolvency is a sharp sword and while the demise of a company is not pleasant, too relaxed a handling of financial bottlenecks can become an existential danger.

Back to our portfolio company. The tax audit at that time was an action of the Turkish government against foreign - mainly German - companies. We revised our cash flow planning within 24 hours, scheduled an extraordinary board meeting, involved external lawyers and wrote an ad-hoc announcement. We were able to reduce the back tax payment by 80%.

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