When Banks Are Inflexible, How Does Your Company Survive the Credit Crunch?
Companies / Credit Crisis 2009 Feb 16, 2009 - 02:09 PM GMTBy: David_Haikney
How do companies survive the uncertain future when they have to assume that Banks will remain inflexible, at least in the short term? What alternative strategies are available? This article explores some options.
Involve your Team
Employers, more than ever, require a workforce that is as motivated to fight the current economic challenges. By contrast, employees currently fear job cuts, which is naturally demotivating. So how can these opposing outlooks be reconciled?
Wherever possible, Directors need to involve employees in discussions concerning potential restructuring issues. This can achieve two objectives. Firstly, in difficult times, employee input is often the source of innovative ideas. Secondly, employees know there is no easy solution to current difficulties. Open communication lines may alleviate some of their concerns, and while not in itself motivational, it minimises the downside impact of forced changes.
Make Overheads as Variable as Possible
There are many companies who feel that a cost cutting strategy will make them incapable of taking advantage of the up-turn when it arrives. However, a strategy of trying to ride out the storm, when the sales outlook remains uncertain and the banks are inflexible, is a high risk strategy. As an alternative strategy a move to variable or outsourced costs will provide a means of reacting quickly to further downturns, or supporting an upturn.
A review of overheads should identify: True fixed costs; what costs could be outsourced; and, what costs are critical to maintaining customer service levels. The objective of this exercise is to move costs that have traditionally been fixed to a variable/outsourced category. This will provide companies with more flexibility to react to market needs.
Dealing with Spare Capacity
Expensive spare office or manufacturing capacity is often a symptom of trading in the current marketplace (although landlords may be prepared to consider a rescheduling of payments in the current climate). However, is there another way of utilising this capacity?
It is highly likely that competitor companies in your region are also struggling in the current climate. This may open an opportunity to merge the operations onto one site, thereby maintaining the customer service levels, saving central overheads and utilising the capacity of one site.
Naturally this strategy has significant problems to overcome, in particular the personal priorities of the respective owners. For this reason such a strategy is often considered a last resort, and as such no approaches are made until it is too late. However, if the alternative is the bank foreclosing then it should be an option placed higher up the list of priorities and considered earlier.
Financial Planning & Timing
Underlying any restructuring strategy should be a detailed financial forecast based on very conservative assumptions. Associated with this forecast should be an action plan, which will trigger specific actions if certain forecast assumptions are not achieved.
It is essential to plan ahead so that strategies can be agreed well before a problem arises. By thinking ahead, using realistic assumptions, managed solutions can be implemented.
By David Haikney
David Haikney BSc ACA is Managing Director of Warfield Investments Ltd ( www.warfielduk.com ), providers of UK Interim Management services and solutions.
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