Get the information you need to manage cash effectively
Although we are no longer in recession, the economy remains decidedly weak.
Availability of finance is patchy and companies (and therefore FDs) must, above
all, be focused on cash. As ever, the FD needs a tight grip on all aspects of
the business and a realistic plan. So management information must be available
on demand and focused on the key drivers, and the business must have a flexible
and robust model to enable it to understand the impact of decisions. Most
importantly, all decision makers must be working from the same set of numbers
and must have bought in to the plan.
Protect your key resources
With the right information and realistic expectations, the company can then
cut its cloth according to its means and successfully manage its way out of the
downturn and into recovery. Things will get better and, when they do, companies
will look to their staff to drive growth. Looking after staff is just as
important when times are bad as when times are good. Good people understand that
pay, benefits and so on are likely to be squeezed when demand is weak. Honesty
and openness – about bad news as well as good – will help to maintain and build
trust and confidence, making it more likely that they will stick around when
things get better.
All directors (but especially FDs) must be familiar with their legal
responsibilities to creditors, and the risks (which include fines and
disqualification) of failing to put creditors’ interests first if the company is
in danger of insolvency. It is vitally important for boards to be honest and
realistic about future prospects, and not to allow their company to drift into
unlawful trading. A board concerned about the at risk of insolvency should take
advice from an insolvency practitioner and minute regular discussions about the
company’s ability to meet its obligations.
Adapt the model to the shifting environment
There are always opportunities out there and once you’re sure of short-term
survival, you can start looking for and grasping them. They will include
opportunities to reduce costs, grab market share and develop new product offers.
The business landscape is changed by recessions. Competitors disappear, new
business models emerge. The old ways of doing things will no longer cut it. So
you need to be creative and opportunistic, and encourage your colleagues to be
the same. And you need to be looking outwards. Make sure you are tracking
activity of your key clients, suppliers and competitors. Be on the look-out for
Take every opportunity to change the landscape
So the FD must be thinking about the business model, be ready to challenge
the orthodoxy and slay sacred cows. Can you use technology to cut costs? Will
the Cloud or Software as a Service (SaaS) work for you? Suppliers should be
challenged too: take opportunities to renegotiate contracts so that they achieve
the optimal balance of price, payment terms, quality and flexibility. And what
applies to upstream relationships applies downstream as well. Analyse your
pricing and devise a pricing policy (or revisit the policy if you already have
one). Make sure you understand where you are making money and why, and aim to
move towards value pricing.
Make sure funds are in place for growth
History suggests that more companies go out of business in the months after a
recession than during the recession itself. Working capital needs will increase
sharply as demand picks up and many businesses will not have access to the funds
they need. The FD should be using his or her robust and flexible forecasting
model to understand the needs of the company in a range of scenarios, and
approaching funders to ensure that cash will be available if and when needed.
Get in early: you don’t want to be negotiating desperately for additional funds
at the eleventh hour. Make sure that you examine all the options: asset-based
lending, the Enterprise Finance Guarantee, state-backed growth funds, angel
investors, private equity (to name but a few) are all open for business.
Be persuasive as well as analytical
The downturn has played to the classic strengths of the FD: analytical skills
and cold, rational judgment. Recovery, and exploiting the opportunities that go
with it, will require different traits, particularly creativity and the ability
to persuade. Now is the time to start working on those skills, perhaps by using
a mentor. When everyone knows that cash is tight, it is easy to win arguments
about cutting expenditure. To win arguments about which opportunities deserve
investment and which don’t, the FD needs excellent influencing skills.
Presentation – both written and verbal – becomes vital. Work on your personal
style and on the look, feel and content of the reports you issue. It will be
time well spent.
Richard Simpson is chief operating officer at FD Solutions