In an article for Financial Director Magazine I provided advice on the areas that CFOs should be thinking about this summer. I have shared a summary of the article here.
What CFOs should be thinking about this summer
Britain has been mired in its longest peacetime recession
since the Great Depression. There are however early signs that the
economy began to pick up over the last six months and the results
of our latest Deloitte
CFO Survey are surprisingly strong.
For British companies, that have spent the four years since the financial crisis in a hiatus of uncertainty, the temptation is to do nothing until the UK economy definitively improves and the Eurozone's problems are resolved one way or another.
Yet large British companies both listed and private, are facing challenges they need to address - as well as opportunities they should grasp - right now. I have prepared a seven-point checklist of what CFOs should be thinking about this summer:
1 - Staying liquid: Scaling the refinancing
wall
A formidable wall of debt maturities will hit the markets in the
period leading up to 2015. If I were a CFO, the thing I would have
on my radar would be looking carefully at my debt maturity profiles
and ensuring access to facilities over the next five to seven
years.
2 - Cash piles: Making them work
While some companies are facing a liquidity crunch, others have
been conserving cash since the financial crisis. The Deloitte 2012 UK Working Capital Performance
Study revealed that excess working capital held by UK plc has
risen to £64bn. CFOs need to consider where to put that money
to ensure that they get a good interest rate for balances.
3 - Zombies: Bringing them back to life
One of the biggest hangovers from the credit crunch is the
emergence of so-called, "Zombie Companies" -
operationally sound businesses, which were acquired or refinanced
in the boom times and saddled with a debt burden that can never be
repaid in full. The solution for Zombies is for their loans to be
allowed to work their way out of the financial system over time.
Over the next three years or so, financial institutions will be
obliged to de-leverage their balance sheets.
4 - Planning for uncertainty: Eurozone
The number one issue for my clients remains the preparedness and
resilience of their business to negative developments in the Euro
area. CFOs can better prepare for risk by:
- Separating the time horizon to look at shorter-term risk mitigation activities versus longer-term, strategic considerations.
- Ensuring there is a robust and considered assessment of both the upside and downside risks to be managed.
- Finally, it is important to develop a pragmatic and achievable approach where management time and company resources are effectively allocated to support the company's response.
5 - Good housekeeping: Sweeping away old
problems
For CFOs who do not have the cash - or desire - to expand, a
recession provides opportunities to control costs; make economies
of scale and position their companies for growth. This is an
opportunity to reconsider older acquisitions and how they were
integrated, as when looked at, particularly with the benefit of
hindsight, it is often clear that more could be done and that there
will be a better understanding of the acquired organisation.
6 - Opportunism: Positioning for growth and
acquisitions
After four years of cost-cutting, cash-rich companies should now
be positioning themselves for an upturn as well as considering
strategic acquisitions that can deliver economies of scale in a
low-growth environment. Business has accepted the new economic
reality is here to stay. In conditions where even modest organic
growth is hard to achieve, CFOs and corporate leaders need to
consider inorganic growth opportunities, otherwise they risk
squandering their hard won gains.
7 - Global strategy: Looking beyond
Europe
New
Deloitte UK Futures research shows that UK big business (with
annual revenue in excess of £1bn) is looking overseas for
growth and 75% of large UK companies expect to be either a global
leader - i.e. within the top three in their industry worldwide - or
an international company - having over 50% revenues coming from
foreign markets - within the next five to ten years.
In a dynamic, globalised economy, simply staying still is just no longer an option. CFOs must stay ahead of the curve, not only addressing any problems before they occur, but they must take advantage of the current business environment. These seven areas should be priority for CFOs, while maintaining their sound approach to making big business decisions.
Read the full Finance Director Magazine article.
Marcus
Boyle
Partner, Head of UK & EMEA Finance
Transformation
Marcus has 20 years consulting experience and is the partner in
charge of Finance Transformation in the UK & EMEA. Marcus has
published a number of articles and papers and is often quoted in
the press on how CFOs can successfully transform their finance
functions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.