Corporate Finance
As so many have said, we are in unprecedented times. Whilst that may be true, many of the business fundamentals remain the same. What was a good business last year will probably remain a good business next year. Coronavirus inevitably means some changes will need to be made, but a good business will remain a good business. How can you ensure your business survives and grows out of the shadow that 2020 will inevitably cast?
Now more than ever it is essential that businesses have timely and good quality management information. Whatever the level of management information historically produced, in the current climate what was considered fit for purpose previously may no longer be fit for purpose.
Initially we will need to know what we are dealing with, so the starting point is to “take stock”: understanding the corporate group structure as well as the family group structure if the group is family owned. Income, expenses, assets, liabilities. The basics. At this stage everything needs to be on the table. Cash flows will dictate how quickly this initially assessment needs to be undertaken. Our years of experience and professional judgement really come to the fore at this stage.
Having begun to understand the business the next step is to prepare some numbers to understand which parts of the business are profitable and which parts are burning cash. Depending on the information available this can prove to be difficult but what is key is that reasonable assumptions, including apportionment of any central costs, are made. Unlike many of our competitors, we benefit from having a team with many combined years of experience “at the coal face”. We also use a number of technical business planning and forecasting tools for this purpose.
A business plan can be 3, 30 or 300 pages long – what’s important is what’s in it. It needs to encompass the shareholder’s passions, goals, short and long term intentions. It needs to include robust financial projections. In order to produce the business plan it’s important to reflect on what the business does well and how this can improved and what will need to change.
Having prepared the business plan and the financial forecasts, revisiting the way the business is financed will be important. Even if the forecast suggests that there is no need for any additional borrowing, it may be that the existing facilities are no longer fit for purpose. By way of example it might be that a level of overdraft should be converted into long term debt or that having seen what lies ahead shareholders might be looking to make some additional capital investment – either by way of share capital or loans.
All of the above steps will help any business get ready for whatever is the “new normal”.
At Scrutton Bland we are already assisting our clients with a number of the stages set out above, our input depending on the client’s requirements and their degree of in-house capability. Our work can be as limited as reviewing and commenting on the “in house” business plan and forecasts produced all the way to working directly with the directors to produce a business strategy and financial forecast as full time, quasi-FD for our client.
With offices in Colchester, Diss and Ipswich, we’re close enough for meetings with clients from all over the East of England. Got something on your mind? We’ll be happy to listen and give you our thoughts.
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