Business planning during times of uncertainty

Is your business ready to face the headwinds? Stephen Scott from Evelyn Partners on the options available to business owner managers.

Following its recovery from the property crash the Irish ecomony has proved remarkably resilient up to this point despite significant challenges from Brexit uncertainty, Covid and now the impact of the war in Ukraine.

However, despite continued Government intervention, in recent months the economic headwinds have ratcheted up a number of knots with many Irish businesses facing choppy waters and a requirement to “batten down the hatches” as we look forward into 2023.

Energy driven inflation, consequent interest rate rises (from historic lows), disrupted supply chains and labour market issues are all negatively impacting the economic environment – and the indirect effect of the squeeze on discretionary consumer spending is yet to be fully felt.     

With such an outlook it is important for directors to really understand their business, its cost base and the potential impact of different scenarios on overall performance.

Set out below are a number of areas where businesses can protect their bottom line, maximise working capital, boost productivity and release cash to help weather the storm.

1. Understand the outlook for your business

Understanding your business value levers, cost base and cost drivers is critical in the current challenging economic climate. Preparing a comprehensive business plan and integrated forecast model is the best way to achieve this. Interrogating your finance system and having a financial dashboard are important steps. We have worked with organisations to review, optimise and prepare an integrated financial forecasting model and show the impact of key drivers on performance.

2. Identify cost reduction opportunities

In this high inflation environment, have you considered your cost base and how to reduce costs without affecting business performance? Combining benchmarking with bottom-up overhead cost reviews will deliver the information you need and help to identifiy targets for reduced spend, including areas like insurance, professional services and finance costs. It is also imperative to look carefully at procurement processes focusing on pricing, economies of scale and payment terms and to strengthen your controls around cost management. Make sure your controls are sufficient to deter unnecessary and discretionary spend, particularly those that sits outside your budget.

3. Manage your cash flow effectively

Businesses often focus on profitability and deprioritise liquidity. However, many organisations have significant debt (with restrictive covenants), increasing interest costs and creditor arrangements to unwind, placing renewed urgency on ensuring sufficient liquidity. It is important to identify and resolve cash drains and implement cash improvement opportunities. Data analytics tools can be used to identify and return value from locked up cash and find ways to optimise working capital processes. These tools can help to identify the main areas of opportunity.

4. Access real time, easy to digest business information

Many businesses operate in an information vacuum, relying on historical information often presented in an outdated excel format. It is important to have access to up to date information on which you can make business decisions. Live drillable dashboards (combining internal and external information) can be utilised to identify trends and track key performance indicators specific to your business and sector.

5. Maximise the tax efficiency of your business

Tax compliance is critical to business success. Reviewing current tax and indirect tax arrangements can achieve cash flow improvements and potentially deliver improved tax efficiency. Your tax advisor should help you to review your entire tax environment including VAT, interest, transfer pricing, utilisation of reliefs, tax payments and warehousing.

6. Simplify complicated group structures

Even relatively small businesses can develop complicated, difficult-to-manage group structures that increase headcount, risks and costs. Having the optimal company structure reduces compliance and administration costs and time. We have worked with clients to streamline their corporate structure to reduce this administrative burden, eliminate unnecessary costs, improve operational efficiencies, release trapped value and minimise tax risks.

Options when in serious financial distress

Unfortunately, during economic down cycles, many businesses will face serious financial distress despite actions taken by management. In such circumstances it is vital to seek advice as soon as possible to assess potential solutions.

For example, SCARP is a new statutory administrative rescue process specifically designed for small companies. The process is designed to limit Court involvement, and it operates over a shorter timeframe than Examinership, aiming to reduce costs. Its purpose is to facilitate the survival of insolvent but viable small companies as going concerns through the implementation of a rescue plan.

At the risk of generalisation, entreprenerurs and SME owners, who are typically self-starters and optimists by nature, may not always seek the help and advice of others.

Yet, the power of good advice from trusted independent advisors is crucial to help protect your business and to help ensure it rides out the headwinds in economic cycles.

For more good advice, contact Stephen Scott or his team at Evelyn Partners to discuss your options stephen.scott@evelyn.com