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Managing the downturn > Financial resilience in uncertain times

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Financial resilience in uncertain times

   Nick Tippett

Many businesses are facing significant pressure due to soaring energy costs, calls for pay rises, supply-side delays and general inflation. These challenges need to be factored into business plans before they really hit home. Their impact will depend upon the underlying strength of individual businesses and their financial resilience.

A tough economic situation and political upheaval does not make for a stable market, but careful financial resilience planning will help with decision making during these times; whilst any downturn brings severe challenges for some, there are often ways to minimise the impact – and for well-managed businesses there will be opportunities.

The key to thriving is your business plan, with business leaders stepping back from the day-to-day to consider what could happen and how the organisation would react. Setting your business up to embrace the challenges that may be faced and to capitalise on the opportunities as they arise will ensure your success.

For all businesses, the people within it are at the centre of embracing changes and ensuring success.

Business leaders looking to thrive should plan for the following key areas:

  • Leadership – In times of uncertainty, teams look to their leaders for guidance and support. Nurturing optimism and supporting people in adapting to new and complex situations ensures that your team are pulling in the same direction when you need them the most
  • Strategy – Clarity over, and communication of, your strategic objectives ensures you and your team are aiming for the same goal when it counts. When it comes to decision making, having a clear strategy will help guide you towards the outcome you are seeking
  • Innovation – Often challenges can be overcome, and opportunities embraced, through innovation. Empowering teams to innovate shares the load of overcoming challenges and making the most of opportunities as they arise
  • Organisational agility – The majority of businesses will be faced with both difficult decisions and positive prospects in the next 12 months. Creating an organisation which embraces change and can be responsive will mean you are well-placed for what the future may hold

Nick Tippett, our Corporate Finance Director, outlines an approach to building financial resilience:

Financial resilience is clearly an important consideration. Management teams should consider in detail their projected cashflows in the face of the ever-changing economic environment, how these overlay with financial headroom and any key areas of potential exposure before they arise. This scenario-based financial planning will ensure you are prepared to make the right decisions for your business at a time when this is critical.

No downturn will last forever, and one cause for optimism is the vast quantum of money in circulation and looking for a home. The gap between interest rates and inflation means that money uninvested is guaranteed to go backwards in purchasing power,

I passionately believe that those businesses which take the time to consider the different scenarios that may arise, empower their teams, focus on ensuring financial resilience and embrace what lies ahead will thrive despite the uncertainty which surrounds us.

In a contracting economy, opportunities for organic growth become limited, leading ambitious management teams to look for opportunities to grow through acquisition. When evaluating potential deals and budgeting, detailed and up-to-date financial data is essential to inform decision-making.

High quality financial data will also help businesses to secure additional funding – whether equity or debt – to support a transaction. The more detail you can give your funders or investors, the more willing they are going to be to support you – either through more funding or more preferential rates or structures.

Sam Phillips, our Transaction Services Director, underlines the importance of having reliable and timely data for decision making:

Data that is granular and produced on a timely basis – perhaps daily not monthly – also gives better clarity on where future growth will be derived.

Businesses and management teams must adapt to the changing times and will be required to make decisions quicker than perhaps they have been used to doing.

In many instances, the key challenge is reliable data. Management information required for running the business is often not detailed enough to make informed investment decisions or strategic plans.

Another common problem we encounter is that information is not updated quickly enough. In a rapidly evolving situation, data that is a month old is often too old. Weekly or daily information is needed to enable informed decisions to be made quickly and, if there is uncertainty, management teams will be required to make assumptions. If they are conservative in their assumptions because they don’t have the detail, this can limit opportunities for growth.

By really understanding your business and having insights at a granular level, you have more opportunity to think about where the growth levers are when preparing budgets. For example, understanding your gross margin mix is key to knowing what service or product lines you should be focusing on, or where the risk areas are that could stifle growth.

It’s not just about growth – it’s about financial resilience and managing the current climate. If management teams take a step back and understand the drivers and dynamics of their sector, they can properly plan for the scenarios they are likely to face.

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