Create resilience in your business ahead of choppy economic waters

Businesses should be preparing to deal with disruption, with the impact of economic pressures being accelerated by structural changes caused by technology and changing consumer behaviour.

Economic indicators are becoming increasingly mixed, particularly in consumer sectors including new car sales and high street spending.

However the looming threat of tougher times ahead can fuel innovation and create opportunities, as businesses explore different models, new partnerships and focus on getting ahead of their competition.

Garry Wilson, executive chairman of private equity house Endless, told a Midlands audience of restructuring professionals that he believes a downturn could be “imminent”.

He was speaking at a conference at the ICC in Birmingham organised by Gateley Plc and TheBusinessDesk.com.

Wilson was on a panel of industry experts addressing the conference theme, “Navigating complexity, change and uncertainty”, and there was general agreement that businesses were likely to have a tough time ahead of them.

Andy Dawson, managing director of change management consultancy Curium Solutions, said: “Something disruptive is about to happen and that creates an awful lot of change, and therefore opportunity, hopefully.”

“I’m looking forward to that disruption,” said Wilson. “I’m an opportunist at heart, and there will be companies – even more companies – in the next 12, 18, 24 months that are going to need money and they are going to need it quickly. That’s an opportunity for my business and the people in this room.”

Dan French, restructuring partner at Gateley Plc, said: “We have to be prepared for a downturn with the uncertain waters we all find ourselves navigating. We must have a well-balanced and resilient business model to deal with the impact of change and uncertainty.

“We’re anticipating that we may be coming towards the peak of the cycle and that means we then have to think about how we are positioned for a downturn but with any type of downturn in the economy, opportunities arise and being prepared to capitalise on these will separate the winners from the losers.”

“We’re in something of a sellers’ market at the moment. We have seen a number of PE firms actually returning funds to investors because they feel there aren’t the right deals out there.
Wilson agreed it is a sellers’ market “for good businesses”, but highlighted the casual dining and bulky goods retail sectors as two that are facing particular pressure.

“There isn’t cash burning a hole in our pocket,” said Wilson. “We have just had a record year, we’ll be fundraising again next year. The guys that are struggling to put money to work are the mid-market PE guys.

“Someone said to me recently that 12 is the new 10. He was talking about 12 times EBITDA instead of 10 – a year ago it was 10 is the new eight. Those are the guys that are having to pay very high prices for some OK businesses.”

Garry Wilson from Endless speaking at Gateley’s Midlands Restructuring Conference

The impact of Brexit – both the direct changes caused by the new arrangements and relationships and the indirect impact from pre-emptive behaviour and uncertainty – is a major issue for businesses in every sector.

Simon Hall, director for exports and investment for the Midlands Engine region at the Department for International Trade, believes “most people are looking at worst case planning”.

He said: “One thing that business hates is uncertainty. People want to be planning a year ahead, three years ahead, five years ahead, and with the uncertainty with how the Brexit deal will turn out that makes planning ahead very difficult. That uncertainty is driving people towards worst-case planning.

“We have got 400 people that are working really hard. We have increased our trade policy group ten-fold, working to put the trade deals in place for the future that will mitigate against that uncertainty and risk.

“We’re setting ourselves up to succeed but clearly the business community is right to be sceptical about that until there is more certainty.”

That scepticism is leading to more caution for businesses planning their next move.

Find out more about the Gately Plc Restructuring Conference and watch the conference video.

Dawson said: “The key thing we are starting to see now is there are a lot of financial year ends coming up, so people are already in that cycle of planning for next year.

“There is a lot more consideration being given to where they are investing, what projects and programmes they are backing, and also making sure that anything they are doing is aligned to the right business outcomes.”

French agreed that having the right investment strategy is crucial, which results from keeping close to the customer.

“The businesses that seem to be performing the best are those that are the ones that are most adaptive to change and are prepared to invest correctly and take the time to really understand their customer base and then to connect directly with them,” he said.

“The ones that are following perhaps slightly outdated models or are reliant on some slightly lazy practices are the ones that we see suffering the most at the moment.”

French highlighted the retail sector, with high street retailers working hard to respond to and resist the chronic pressure from online that has increased over the last decade.

He added: “A lot of the larger retailers now are really experimenting with their traditional models to try and work out how they can drive more footfall into the business – trying out different concessions in their stores, different locations, diversifying their product – all with a basic aim of how do we drive more profit, how do we get people spending more money within the store and spending more time in the store.

“These are challenges, and that level of uncertainty – while it leads to experimentation, which can be good – is also massively distracting for management, can lead to a lot of false starts, and a lot of investment that doesn’t lead to a return. I think for a lot of retailers are struggling with a complex and rapidly changing environment at the moment.”

But for all businesses, regardless of sector, Endless’s Wilson offered advice on preparing for the forthcoming difficulties.

He said: “I’d start with cash and make sure they have got enough cash headroom to get them through any dip that is likely to come along the way. Start there, make sure their bank is in a comfortable position, or their current funder.

“The thing about a recession is if you’re reliant on invoice discounting and your sales take a hit, you’re going to get hit very, very quickly.”

Find out more about the Gately Plc Restructuring Conference and watch the conference video.