It’s tempting to wait. As BT chairman Sir Mike Rake said at our recent
Financial Director Summit: ‘We have to cure the disease and subsequently work
out what caused it and prevent it.’
That’s true but it’s never too early to start asking. Indeed a few lessons
learned and applied in the wake of HSBC’s sub-prime write-downs 18 months ago
might have saved us all a lot of pain.
Conversations I’ve had with finance directors, chairmen, partners, chief
executives and regulators in recent days and weeks suggest there are key lessons
to be applied if businesses are going to survive in the months and years ahead.
Cash is king. Do as Neil Morling, group finance director of property
consultancy EC Harris does, and report on cash daily to your boardroom
colleagues. Also speaking at the FD Summit, Tesco FD Andy Higginson reminded us
all that ‘cash could kill’, with too many businesses ‘sleepwalking’ to their
collapse by focusing on earnings instead. If that’s too glib (or not glib
enough?) listen to Ged Simmons, UK CEO of Cognos, whose FD tells him simply:
‘Cash is cash.’
Don’t let your cash focus stop you examining every aspect of working capital.
Indicators around days sales, days inventory held or days purchasing need your
attention as well. As IBM’s Simon Terry told our Insider Business web seminar
recently, don’t be satisfied with internal benchmarks, measure yourself against
your peers too.
Focus on discretionary spending. Deloitte research found 82% of FDs are
planning to cut spending on travel, hotels, entertainment, training, etc. You
may need to do the same.
Think the unthinkable. Now may be the time to implement structural change.
The proportion of CFOs contemplating moving capacity offshore has more than
doubled from 13% to 29%, according to that Deloitte research.
Focus on risk. Don’t, for instance, put all your eggs in one basket. Despite
having their fingers burned in the collapses of BCCI and Barings, many local aut
horities – and others – have failed to spread their risk. Too many have tied up
too much money in Icelandic banks, chasing a marginally better interest rate.
Even the Audit Commission – the council spending watchdog – had £10m tied up in
collapsed Icelandic banks.
Damian Wild is editor in chief of Accountancy Age and
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