How strategic financial planning and business turnarounds can keep firms afloat

A panel of experts chaired by TheBusiness.com Yorkshire editor, Andrew Staples, tackled a number of key aspects of business resilience adaptation and transformation.

They shared their extensive professional experience at TheBusinessDesk.com’s Building Resilience seminar, which was sponsored by The Institute for Turnaround (IFT).

Taking part in the event were Bridie Robinson, business support director at Lloyds Banking Group, Kelly Jones, transformation director at New Potential and an accredited member of IFT, Gemma Edghill, associate director at Teneo and James Davison, partner at DLA Piper.

Panel members gave their advice on what companies should do to stay healthy in these volatile economic and political times.

Robinson stressed businesses must not neglect financial planning, pointing out that companies often think they don’t need to have a financial director.

She said: “When I’ve seen things go really wrong, that’s where that financial function has been overlooked. All the decisions the CEO takes should be fundamentally backed up by a strategic, well thought out finance plan.

“Ultimately we often advise companies that they need to bolster their finance team and bring in an FD above whoever they currently have in residence. Most of the time it pays off for companies which invest in this.”

She said firms must not shy away from keeping their key stakeholders in the loop, even when it involves having some tough conversations.

“As a bank if we hear that a covenant has been breached but we haven’t had any warning signs come out of the business, that automatically makes us question the management team’s integrity and how in control they are of the business,” she said.

“Nobody likes to have a difficult conversation with the bank. Nobody likes to say ‘we’re having liquidity issues, we need some support,’ because they think the bank will run for the hills.

“Typically, that is not what will happen, the bank would prefer to be kept informed of issues. To bring your stakeholders along on the journey is not a bad thing.”

Jones said she had been impressed overall with how resilient businesses have been in recent times.

But she added it felt like interest rates have been that “brick which has broken the camel’s back,” which has made it difficult for some companies to sustain cash flows on a short-term basis.

She warned some firms are not adapting their monitoring methods to take into account tougher circumstances.

She said: “I’m staggered by how many times businesses haven’t changed their monitoring or focused more on cash flow when they’ve moved into a stressed period.

“You’ll ask people how they’re performing and they’ll speak to you about EBITDA numbers. But they’ve got a more serious problem, so it’s about trying to change that dialogue.

“I sense that a lot of times management information becomes perceived as something you do on a Friday afternoon or a Monday morning. It’s just one more task that you have to tick off the list.

“But when you get an early warning sign, maybe management teams should step back and say, are we doing this quickly enough?”

Edghill also highlighted interest rates as being a major obstacle in the path of establishing financial resilience.

“It’s not only about the effect on businesses in terms of the cost of borrowing, but the interest rate’s impact on spenders – even though inflation is starting to drop slightly and consumer confidence is returning to a degree,” she said.

“You’ve got the impact of interest rates on mortgages, which is hitting consumer spending and having a knock-on effect on businesses.”

Turning to what support companies can access, she advised: “In terms of funding you’ve got equity options, there’s a number of challenger banks, shareholder investment and private debt funding.

“You should reach out to advisors because most of us have been in a lot of different situations and are likely to have seen what you’re seeing as a business. We’ve probably been there before and we can recommend good options.”

Davison said business managers should be aware that the market for turning struggling companies around “has changed beyond recognition” in the last decade.

“Now the tools are there to empower management teams to deliver a turnaround where the ownership and the management team stays intact,” he said.

“If there’s a good business to be rescued there is no situation that is too complicated to make that happen, provided you have the time and bandwidth to assess the options and work out what the best way forward is. There is no reason why any good business should fail.

“We’ve now got this tool called the restructuring plan which is like a scheme of arrangement, where you can completely right size a company’s balance sheet.

“We’ve seen quite a number of cases where the restructuring plan has been successfully used to implement provision of new money, often from existing shareholders but conditional on a tidy up of the balance sheet.

“It keeps the business in control of the existing management team and enables the shareholders to put new money in. And it delivers a proper turnaround instead of a breaking up of the business.”