FRP Advisory LLP

Business planning in uncertainty – update from FRP Advisory LLP

Press Release   •   Nov 25, 2010 15:58 GMT

By Nick O’Reilly, Client Service Director at FRP Advisory, the specialist restructuring, recovery and insolvency firm.

As we wait for the full impact of the Government’s Comprehensive Spending Review (CSR) to take effect, how can managers plan effectively in an environment still characterised by a slow recovery and uncertainty?

In his most recent address in November, the Governor of the Bank of England said the outlook for the UK economy remains "uncertain". For business owners and managers, short of hearing that we’re plummeting back into recession, there is no worse economic diagnosis.

Unfortunately, this uncertainty means it is likely to be a long, slow crawl out of recession. Corporate insolvencies are down, which is unusual given that after previous recessions we have generally seen a spike, and they are expected to remain at low levels as we go into 2011. However, there are still few businesses expanding and few taking on new staff – we are seeing companies exist, rather than grow.

Lenders tend to be in the same “wait and see” mind-set. With little appetite for growth or capital expenditure, the demand for new funding is fairly low. Instead, companies are fighting to prove their viability to extend or renew existing loan or overdraft agreements. "Tried and tested" are the watch words of the banks at the moment; lenders are looking for stable management teams with proven track records and products or services with solid demand.

So in this environment of uncertainty, where the economy is bracing itself for the full impact of the CSR to take effect, how do managers minimise risk? How can managers take advantage of opportunities while preparing themselves for what lies ahead?

In our view, it is wise to firstly guard against the worst case scenario. Given the unpredictability of the economy, putting in place a plan that addresses the potential for one or more business critical event occurring in 2011 is a wise move. Business critical events could be a funding line being reduced or taken away, the loss of a key customer, a supplier getting into financial difficulty or simply pressure from customers to drastically reduce prices. If such an event occurs, there are a number of steps that should be immediately taken by the management team.

1. Consult your accountant: the worst thing any manager can do at the first sign of trouble is to look the other way. The problem will not go away, it will only get worse and, the longer it is left, the fewer options will be open to the business when management finally does face the music.

2. Get a tight control on cash management: if this is an area that has traditionally received little attention, make sure it becomes a key priority. Analyse the debtors, particularly late payers, and agree a plan of action with the finance team or credit controller to recoup outstanding debts as quickly as possible.

3. Communicate regularly and clearly: make sure internal lines of communication are clearly understood and regular reporting is maintained. If management fails to communicate with staff, then a version of the truth, usually inaccurate, will become the reality. This type of alarmist gossip will distract and demotivate staff and, at worst, will result in concerned team members hunting for a job elsewhere. 

If these steps are taken quickly, it is very possible that the event will prove challenging, rather than fatal. Planning for these types of events will also reassure funders and senior members of staff, in itself helping to make the business more stable.

So what if the business finds itself in all together happier circumstances, faced with the "good problem" of how to take advantage of a growth opportunity? The biggest challenge for a business on a growth curve is resource and finance. How do you ramp up operations to satisfy a spike in demand, particularly when lenders are cautious and adding to the company’s long-term staff cost-base is still risky?

There are flexible options available both in terms of resource and finance. From a resource perspective, clearly there are contract and temporary staffing models that can be employed, including the use of interim managers if the company requires particular expertise to break into a new market, for example. Similarly, if traditional bank funding doesn’t allow for the business to take advantage of a new opportunity, asset finance can be a sensible alternative. Asset finance, whether leasing or hire purchase, invoice finance (via factoring and invoice discounting), or stock financing, offer businesses an opportunity to proactively utilise the full asset mix to secure finance. This type of finance, which alleviates cashflow pressures and allows for expansion, is a very sensible funding method during an economic recovery. It enables a company to be more flexible, grabbing opportunity while reducingthe potential risks of over-trading.

There is no simple answer when planning in an uncertain environment. But by recognising the challenges and opportunities uncertainty presents, and the solutions available to some of the problems created, management can put the business in the best possible position to survive and grow.

- Ends -

Contacts us to find out more about how FRP Advisory can help you and your business:

Georgina Swain, FRP Advisory, Tel:  +44(0) 20 3301 7350, Mobile: +44 (0) 7881 523 345, Email: nationalpressoffice@frpadvisory.com

For all Press enquiries, please contact either Georgina Swain or:

Kate Macnamara, Tel:   +44 (0)121 265 2761 Mobile: +44 (0)771 422 2793 Email:   kate.macnamara@grayling.com

About FRP Advisory

FRP Advisory LLP is focused on creating, preserving and recovering value for its clients.

The firm offers a comprehensive suite of services to the mid-market and financial community. These focus on enhancing the performance of businesses, as well as saving businesses in distress. 

Services include: commercial & asset finance, corporate insolvency, restructuring, independent business reviews, interim management & placement services, personal insolvency & advisory, creditor services, insolvency investigation services and banking live-side support.

With 28 partners and 200 staff, FRP Advisory is one of the largest restructuring, recovery and insolvency firms in the UK, operating out of 9 regions including: East Midlands, Eastern Region, Kent, London, North West, St Albans, Sussex and West Midlands.

To find out more, visit www.frpadvisory.com

FRP Advisory LLP is focused on creating, preserving and recovering value for its clients.

The firm offers a comprehensive suite of services to the mid-market and financial community. These focus on enhancing the performance of businesses, as well as saving businesses in distress. 

Services include: commercial & asset finance, corporate insolvency, restructuring, independent business reviews, interim management & placement services, personal insolvency & advisory, creditor services, insolvency investigation services and banking live-side support.

With 28 partners and 200 staff, FRP Advisory is one of the largest restructuring, recovery and insolvency firms in the UK, operating out of 9 locations including London, Bexleyheath, Hornchurch, Birmingham, Manchester, Leicester, North East, St Albans and Worthing.

To find out more, visit www.frpadvisory.com