Finance & Funding

The right finance at the right time

When times are hard, cash is king and managing the cost base essential. The companies that emerged from the last recession as sector leaders typically held more cash on their balance sheet than their less fortunate competitors.

To survive, businesses also need to consider reducing their cost base sustainably, while maximising profitability. For some, fundamental change to their business model will be required.

Many companies will be concerned about their chances of refinancing, but debt funding is still available to businesses with a well thought out plan and a robust cash position.

Refinancing can act as a catalyst for change within an organisation and provide the flexibility to help achieve strategic goals.

Not having the right financing arrangements in place for your business may make your borrowings unnecessarily expensive or restrict access to working capital or funds for growth.

Couple this with a deteriorating relationship with your lender, and you can quickly find yourself in a position where your financing no longer supports the strategic vision of the your business.

Refinancing can help alleviate some of these issues; however in the current climate, companies could be forgiven for thinking that their chances of refinancing their debt are slim.

Whilst it is clear that the downturn continues to impact your options, debt funding is still available to businesses with a well thought out plan and a robust cash position.

The key to getting the right debt financing for your business is to understand what different types of lenders are offering and then find the type that suits your business.

When the availability of credit is impaired, lenders will look more closely at a company’s risk profile before making the decision to lend or to renew a finance facility. Companies may find that cash becomes more difficult to manage, but even in a credit crunch environment, opportunities exist for businesses to stay ahead of their rivals by doing the simple things well. Staying in control of your own business destiny depends upon three things:

• Transparency - don’t overload management with information. Identify your key performance indicators and focus on them. Understand what the data you have is telling you about your business.
• Ownership - only the Board of Directors can have a comprehensive view of the business. Individual departments may have competing demands, but the Finance Director must manage and balance the whole.
• Communication - once communication breaks down, trouble begins. Communication with all stakeholders is vital if management is to stay in control. Lenders dislike surprises, suppliers need to know when they will be paid and customers need to pay on time.

What questions should I ask myself?

• What is the business' current headroom and what headroom remains once I run my most likely scenarios? Are there any liquidity/covenant issues arising?
• What steps could I take to create more headroom? (For example, proactive working capital management, rapid cost reduction, access to all facilities, disposal of surplus assets).
• What opportunities are there to renegotiate existing financing arrangements as business model and circumstances evolve?
• Am I familiar with my obligations under financing facilities?
• Have I reviewed my internal reporting systems to focus on key performance indicators which are more adapted to the current environment?
• What impact has the market volatility had on my pension scheme? Have I reviewed my cash commitments and identified alternative ways to secure the pension?