20 Sep Weathering economic headwinds
Weathering economic headwinds
September 20, 2022
Uncertainty about the current economic situation is increasing. Staff shortages, rising prices for energy and raw materials, and increases in (tax) administrative burdens. How can you weather the economic headwinds?
Take a critical look at your own business
More than ever, times such as these underscore the importance of a company’s financial resilience. Looking into the financing options before it is too late is particularly important (more on that later). But also be sure to take a critical look at your own business by following a few basic ground rules.
Cash is king: utilising the liquidity available is the easiest way to navigate through challenging times. So, the achievement of a strong cash position should always be your first priority. Consider the following points, for example:
- Manage your working capital well. Consider the financing need and period applicable for every order placed;
- Focus on the margin not sales;
- Sell obsolescent and surplus stock and also surplus and unused machines and other business assets;
- Establish whether asset-based financing (lease) via sale and leaseback could be an option;
- Do (stricter) credit control checks;
- Consider whether it would be possible to stretch credit terms while also continuing to meet the agreements made. Also explore the possibility of just-in-time or on-call arrangements with suppliers;
- Ascertain whether it would be possible to finance receivables via factoring;
- Establish whether it would be possible to prefinance accounts payable balances;
- Discuss customised solutions for (the extension of) deferment of the payment obligation with your bank or another financier;
- Explore alternative forms of finance that would be appropriate for your organisation.
Be critical of costs; cut back on them before it is too late. Make your organisation as ‘lean’ as possible. Reorganise your employee base with the creation of a future-proof organisation in mind. Phase out jobs filled by the flexible workforce on time and consider outsourcing non-business-critical activities. Be critical when temporary contracts end and discontinue any activities that are not profitable.
Continue to communicate with suppliers and customers and most certainly with your people on the work floor too. Involve your employees and listen to their ideas. They are often a good source of cost saving ideas.
Take steps to ensure that you are in a position to settle the liabilities accumulated on the basis of a strong revenue model. Although the arrangements you put in place and financing options possible can buy you time and money in the short term, do not forget to focus on the changes necessary to your organisation.
To achieve good information provision, make sure you are always on the ball. Ensure that you have a good overview of the current situation and look towards the future. ‘Speed and heading in the right direction’ are more important than ‘precision and details’. Stay in control of your accounts. The ability you have to comply with arrangements and possible financing options will require you to be able to forecast accurately too. Make decisions based on (liquidity) forecasts.
Questions about your specific situation?
Please get in touch with your dedicated contact person at Joanknecht or one of our recovery advisors as listed below.