Director: Corporate-911
Lao Tzu, a renowned Chinese philosopher, once said that a journey of a thousand miles begins with one step. If we focus on the journey that a distressed business takes, it is safe to say that the journey towards becoming financially distressed is a far cry from the vision that the company had when it was established.
Business owners often ask how they became financially distressed. While many companies face financial distress because of mismanagement or financial irregularities, what we are seeing now is that good companies are being placed into financial distress because of the disruption in the external environment that they face. It has nothing to do with mismanagement or financial irregularities.
This places BRPS and turnaround professionals in a position where they have to have an entirely different conversation with companies. Because of this, focussing on one of the early indicators of financial distress becomes vitally important. Managing cashflow, as well as accounts payable vs accounts receivable, will be vital and the current trends surrounding this will impact the advice we build into our service offering.
Business operations will be streamlined
The article points out that we have seen rapid technological developments in the past couple of decades in the form of faster computers, smartphones, and faster Internet. This has led to faster communications being made at considerably at lower costs.
In the future, this will be the key to making business operations more efficient and enabling production with low error rates. Therefore, expect to see more and more electronic communications being used on a daily basis to keep productivity high and tighten cash flow budgets.
Diversification of businesses will be on the rise
Keeping in mind the current state of the economy, an increasing number of companies will look to diversify into other fields and provide new product and service lines.
The article adds that old businesses may not be completely liquidated, but may be revamped (revitalised) to include new services and faster delivery times. This will be done alongside enhancing the customer experience which is an important trend in the retail space.
Emerging fields which cater to newer technologies will flourish and expand faster.
Photo By: Canva
Businesses will be more mobile in future
There are already thousands of business applications available today for businesses to use. These applications allow customers to perform different tasks such as shopping, banking, paying bills, ordering groceries, booking tickets, etc.
In the future, more companies will move towards video advertising through such business applications. Cash flow plans will be designed to incorporate a businesses’ move towards embracing the internet while helping increase productivity and efficiency at reduced costs. This means that digital marketing will become an increasingly important aspect of any business. Is there an interplay between marketing budgets and cash flow management. Marketing is one of the first things that is cut when budgets are tight, yet, it is one of the most effective tools at your disposal to sell your products/services.
Existing on mobile is more than merely having an online store where consumers can purchase your products or a list of services that the company offers. Its about managing your digital persona and driving traffic towards platforms where you add value.
Availability of business credit will remain slow
This is important and will change during the course of the year as the global geopolitical climate evolves.
Despite various government initiatives and directives insisting that banks loosen their purse strings for businesses, credit lines will still continue to remain tight in the coming year. Another important red flag to pay attention to is the cost of servicing this debt.
Currently, banks and credit companies are reluctant to lend money to businesses. Therefore, companies need to learn to operate with less credit so that their cash flow projection will include reduced expenses so as to operate on cash.
This may mean that companies will need to rethink the structure of their businesses and whether they operate as an asset heavy or asset light business.
Companies will invest in security concerns
As we employ a large number of smart devices in our daily business activities, there will be a significant increase in the probability of confidential data being breached.
Existing merchant ecosystems and financial services are not well-equipped to address such data security issues.
Therefore, we will see an increasing number of companies investing a considerable amount of money in getting their systems more secure so that their corporate financial management processes operate safely without any glitches.
Photo By: Canva
Businesses will opt for external help
The article points out that businesses will look to hire a number of external independent contractors rather than hiring traditional in-house employees.
This will help them reduce their payroll tax and benefit costs while also receiving access to better-trained talent. In the future, more qualified and talented pool of resources will look to work in a flexible schedule environment. Cash flow plans will therefore also look to incorporate outsourcing through external businesses instead of hiring in-house teams.
This has given rise to the consultant culture that is currently a global megatrend. Managing this may save a company from a cost basis, but may result in significant school fees if companies cannot get all of these stand-alone departments to work together towards a common purpose. The road to distress wont be very far if this is not managed properly.
Armed to the teeth
It is important that companies keep a track of their money and manage all their finances in an efficient manner. Cash flow is important for all businesses but very critical for startups. Companies need to keep a check on the three main elements of cash flow analysis which include accounts receivable, accounts payable, and final shortfalls.
Armed with this information, how do we approach cashflow management in the current environment? What advice are we offering our clients in order for them to manage this properly?
The importance of the role of the BRP or turnaround professional will only increase in the future as companies will seek professional help to manage this in an effective manner.
Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner
