CASE STUDY THE EXPERTS' ADVICE: THIS STORY is, essentially, about balance. In business, as in life, we need to achieve equilibrium.

Commerce is about balancing creativity, and a can-do attitude, with an appreciation of how business works. John knew how to make excellent cabinets, but was not well versed in business practice. In the course of the story, John is confronted with several moments of truth and it is his reaction to these which is interesting.

In the case study, we see a series of events which is all too common in business today. In addition, there are elements which are particularly seen in small, family run enterprises, where a different dynamic often operates.

John has many admirable qualities. He is creative, passionate, courageous and industrious. He learned his trade from the bottom up. He graduated from apprentice to master craftsman and so was an expert at making things with wood. When John was laid off he did not curl up and give in.

Through the support of his wife, Vera, he decided to give business a go. This represents his first moment of truth. John and Vera grasped this opportunity and by skilful division of skills, launched the business.

Initially, the business developed slowly but surely, based on a quality product, excellent service, skilful selling by Vera and good customer relations. Turnover increased steadily and the range was expanded.

Then came another significant turning point - the return of the sons.

The O'Malleys were, naturally, delighted that the business would continue in the family. They felt that the boys, who had no experience running a manufacturing business, would inject new vigour into the company. One wonders that, had they not been related, the recruitment of a successor might have been more rigorous.

The new arrangement started well. With new energy, the boys got to work. John was available to assist with technical issues, but took a step back in relation to the day-to-day running of the business.

This is often difficult in a family business. At what stage does one cede control to the next generation? Does the younger incumbent listen to his parents or does he feel that he "knows what he is doing, thanks very much".

The sons made the classic mistake. They got carried away with their own enthusiasm and belief and began to overtrade. Whereas they could be forgiven for buying a machine which was too big, on the basis that it would be necessary in the future, paying cash for it was a major, possibly fatal, error.

The stock in hand was also very high, eating into cash flow, the life blood of any business, especially in today's economic climate. Vera was concerned but took her eye off the ball. She did not see what was happening until the bank intervened.

Banks are like any other business; they are concerned about profit and security. Most financial institutions will be reasonable with businesses that keep them informed about what is happening. There is no point complaining when the bank calls a halt to your credit, it is too late at that stage. It is vital to keep in regular contact with your bank so that they can get a feel for what is happening. In any business relationship, trust is paramount. If your bank is aware of how your business is progressing they may be more willing to provide leeway on existing deals and can often offer helpful advice.

In the case of the O'Malleys, proper communication would have avoided a lot of problems. If regular meetings had been held, within the company and between the company and the bank, the outcome would have been better.

In order to carry on, the O'Malleys should arrange a meeting with their bank, and maybe another financial institution, to agree a plan for the next year. They should then try to arrange finance both for the machinery and stock, thus releasing working capital.

They need to hold regular internal meetings to agree a plan for the business, going forward, as well as looking at marketing initiatives to reduce stock levels as they need cash. Examining the cost base is essential and any savings here can go straight to the bottom line.

If these steps are carried out, there is no reason why the business shouldn't thrive.

Gaetano Forte, a principal dealer in Sweeney Forte Motors

OVERTRADING often occurs when a business expands too quickly. While Sean and Paul's enthusiasm and ambition for growing the family business is admirable, they were so preoccupied with growing the business and meeting the promised delivery schedule for the supermarket order that they lost sight of the critical day-to-day management and cash flow requirements of the business.

The brothers only requested a small deposit at the start of the supermarket assignment. If, however, they had negotiated progress payments from the supermarket to be paid throughout the assignment, it would have considerably helped to maintain adequate cash flow.

However, the injection moulding machine they bought was actually larger than they needed and rather than leasing or borrowing to buy the equipment, they paid cash. This again caused a strain on the working capital of the business.

While they believed they had negotiated a good deal on their raw materials, this deal meant that they had to pay for all the stock up front and also resulted in a storeroom full of raw material for which they had no immediate use. There are high costs associated with holding excess stock, such as increased insurance costs, warehousing costs, together with the risk of theft, obsolescence or damage to the stock.

The brothers took on two additional staff. However, if they analysed the need for additional headcount, they would have realised that it was not wholly necessary to recruit these employees on a permanent basis. Instead, they could have employed temporary staff on a short-term basis to help meet the deadline of the supermarket order.

They should try to re-negotiate the payment terms with the supermarket and insist that new terms will apply for all future orders. Re-negotiating payment terms to ensure the business receives progress payments for work done will not only boost cash flow, but it will also reduce the chance of bad debts.

The O'Malleys should consider putting a sale and leaseback arrangement in place to help fund the cost of the injection moulding machine. While a sale and leaseback facility is more expensive in the long-term, this facility would help address their cash flow deficit with a one-off cash injection that can be assessed immediately to cover current commitments.

They should also review their employee contracts to see if they can engage these employees on a contract basis as required. They should also establish procedures to ensure that any proposed increase in headcount is examined and suitably justified going forward.

Furthermore, they should try to sell some of the stock they are holding to help improve their working capital and where possible to negotiate more favourable payment terms with their own suppliers.

The brothers' more immediate concern is seeking short-term funding to allow them to continue to trade. In advance of meeting the bank manager, they should assess the short-term cash needs of the business by preparing projected accounts including cash-flow forecasts for the next 12 months.

They should also consider preparing a business plan to present to their bank manager. Such a plan will help them to focus on where the business is now, where it is going, how it will get there and what steps must be taken in order to maximise the businesses chances of success.

This business plan should also address the fundamental issues raised above and help demonstrate to their bank manager that they have plans in place to resolve such issues and avoid such situations re-occuring in the future.

Paul Hennessy, partner in charge of business and wealth services in PricewaterhouseCoopers.