Cash and finance lie at the heart of building resilience, particularly in the current climate, writes John Gethen – Corporate Finance Director at BDO LLP.
Taking steps to maximise cashflow and financial headroom is essential and, while the dynamics of each sector and company will be different, there’s no doubt that many businesses today will have a heightened focus on cash generation, cost control and managing working capital efficiently.
When it comes to cashflow, it’s essential businesses make sure they are fully aware of how their market, operating model, and aims have changed and may evolve in the both the short and medium term.
In any economic climate, but particularly this one, it’s prudent for businesses to introduce measures to identify, control and review spending, particularly on non-critical functions or cost centres.
What’s more, talking proactively to suppliers and attempting to negotiate longer payment terms for example or, conversely, discounts for early settlement, could be beneficial. In addition, there’s considerable value to be had in approaching lenders to talk through important aspects of the relationship, whether that’s simply facility renewals (and associated terms) or the relaxation of existing covenants, or to discuss debt repayment options, such as holidays or an interest roll-up, or to better understand possible access to further lending, if required.
Amongst all this, the FD will play a key role in collating and analysing good quality, up-to-date financial information. In particular, close emphasis should be paid to the management of working capital, including areas such as stock, trade debtors & creditors, as well as closely analysing & forecasting funding requirements and existing facility headroom.
In the latest Rethinking the Economy survey by BDO, one-fifth of East Anglian businesses said they intended to seek new investment in a bid to respond to the current rates of inflation and the cost of living crisis.
It’s also really encouraging to hear that businesses in the region remain focused on growth, with 20 per cent of companies planning to expand overseas for the first time in the next 12 months.
This expansion can be achieved in a variety of ways but, for those companies looking to gain a strong foothold in overseas territories quickly and efficiently, the most obvious route is M & A.
Regardless of whether it’s domestic or international expansion that’s on the cards, there are a number of important factors to consider when thinking about M & A.
What source of funding is right for your business? Is it debt finance, a bank loan, crowdfunding, or investment trusts/VCTs? According to our Rethinking the Economy survey, 29 per cent of businesses in the region believe revenue-based finance is the most attractive option when considering whether to take on additional capital in the next 18 months.
However, it’s important to note that economic uncertainty breeds caution and investors will be looking at how companies have performed in the face of recent challenges, demonstrated resilience, while also looking for any operational weaknesses.
As such, companies should take the time to assess their business models and adapt their strategies to the new business environment emerging from the global pandemic recovery.
Keeping a watchful eye over business performance, any fluctuations in key financial markers, as well as market conditions, will be vital to enable companies to act promptly and proactively and address any potential restructuring requirements that may arise in future.