BusinessCorporate FinanceView from the board: cash is king

View from the board: cash is king

I hosted a lunch last week. It was a lunch made up of finance directors from PLCs and private equity-backed companies, NEDs and investment bankers. Two things amazed me

Firstly, everyone turned up!

Secondly it was the first time that I’d heard 2011 as the year that people
thought this ‘interesting market’ would last until.

Now I know finance people are supposed to err on the pessimistic side, but
this surprised me ­ and quite a few of the other people round the table.

However, the view was that the banking environment would need a couple of
years to sort out its balance sheets so it could start lending properly again,
and as a result businesses were going to struggle to raise the capital they
needed to invest in growth.

Well, while depressing to hear, it all seemed to stack up. But given
businesses were going to need to grow to keep shareholders happy ­ how were they
going to do that?

Ringing round their key investors and explaining that through forces outside
of their control, the top and bottom line of the business was going to stagnate
for the next 24 months doesn’t feel like a palatable option.

The answer was simple ­ cash management. The companies people worked for were
going to have to
spend what money they had much more wisely, tighten up their controls more in
areas where doing so would unlock cash flow and really drive a ‘cash conscious’
mind-set out across the operational management.

That’s going to come from outside ­ and it’s unlikely a bank is going to lend
you money at the moment unless they trust the FD will spend wisely.

Alternatively it is going to come from inside ­ and that’s only going to
happen if finance find it, bring it back to the centre and make sure it is spent
wisely. So any which way, the FD and their team is pivotal.

Oh ­ and one final, cautionary point. We’re all used to auditors and
investors who look at the financing arrangements and worry if anything coming up
soon hasn’t been planned for.

Well ­ coming up soon is slipping into the next couple of years.

So get contingency planning now and show your board and CEO
another reason why a good business can’t exist without an even better finance
team!

Mark Freebairn is a partner at Odgers Ray &
Berndtson

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