16/12/10

By Nick O’Reilly, Client Service Director at specialist restructuring, recovery and insolvency firm FRP Advisory LLP

Following a difficult recession, we are now in a recovery described by the Bank of England as “choppy.” There are still few businesses expanding or taking on new staff; we are seeing companies exist, rather than grow. So in this environment of uncertainty, how do managers plan for recovery — and how can they take advantage of opportunities, while preparing themselves for what lies ahead?

Guard against worst case scenarios
Given the unpredictability of the economy, it is a wise move to organise a plan that addresses the potential for one or more business critical events occurring in 2011. This could be a funding line being reduced or taken away, the loss of a key customer, a supplier getting into financial difficulty or simply pressure from customers to drastically reduce prices. If such an event occurs, there are a number of steps that should be immediately taken by the management team:

1.Consult your accountant: The worst thing any manager can do at the first sign of trouble is to look the other way. The problem will not go away, it will only get worse and, the longer it is left, the fewer options will be open to the business when management finally does face the music.

2.Get a tight control on cash management: If this is an area that has traditionally received little attention, make sure it becomes a key priority. Analyse your debtors, particularly late payers, and agree a plan of action with the finance team or credit controller to recoup outstanding debts as quickly as possible.

3.Communicate regularly and clearly: Make sure internal lines of communication are clearly understood and regular reporting is maintained. If management fails to communicate with staff, then a version of the truth — usually inaccurate — will become the reality. Alarmist gossip will distract and demotivate staff, and could result in concerned team members hunting for a job elsewhere.

If these steps are taken quickly, it is very possible that the event will prove challenging, rather than fatal. Planning for these types of events will also reassure funders and senior members of staff, in itself helping to make the business more stable.

Make the most of a golden opportunity

What if your business finds itself in happier circumstances, faced with the ‘good problem’ of how to take advantage of a growth opportunity? The biggest challenge for a business on a growth curve is resource and finance. So how do you ramp up operations to satisfy a spike in demand, particularly when lenders are cautious — and adding to the company’s long-term staff cost-base is still risky? There are flexible options available both in terms of resource and finance:

1.Resource: You can employ a range of contract and temporary staffing models, including the use of interim managers if the company requires particular expertise to break into a new market, for example.

2.Finance: If traditional bank funding doesn’t allow you to take advantage of a new opportunity, asset finance can be a sensible alternative. It offers businesses an opportunity to proactively utilise your full asset mix to secure finance — such as leasing or hire purchase, invoice finance (via factoring and invoice discounting), or stock financing. This can alleviate cashflow pressures and enable expansion, making asset finance a very sensible funding method during an economic recovery. It allows a company to be more flexible, grabbing opportunity while reducing the potential risks of over-trading.

There is no simple answer when planning in an uncertain environment. But by recognising the challenges and opportunities uncertainty presents, plus the solutions available to some of the problems created, management can put the business in the best possible position to survive and grow.