Carly Bleathman
Partner, Business Services & Outsourcing
Staying ahead of economic shifts and navigating turbulent economic times will support your business’ growth and profitability, and help you secure funding and investment in a challenging market. Here we share four key ways to maintain financial stability but still drive growth.
The insights in this article are from a series of interviews with our experts about how businesses can build better financial resilience in 2024 and beyond.
Extracted from an interview with Carly Bleathman, Partner, Business Services & Outsourcing and Derek Neil, Partner, Corporate Finance
Interest rates, inflation, and geopolitical concerns – businesses are navigating increasingly complex issues every day. If you want to remain financially resilient in turbulent times, it is important not to lose sight of the fundamentals.
Regardless of the economic environment, the focus should always be on strong cash control. By closely managing and monitoring cash flow and building cash reserves, businesses can remain flexible in the face of uncertainty or any unexpected challenges. But while you need to regularly review your current financial situation, it is also important to think ahead.
The starting point for striking a balance between pursuing growth opportunities and maintaining your current position is having a good financial model – understanding the options your business has and the funding available to deliver these.
A strong financial model is essential to building financial resilience – giving your business clearer financial visibility, improving adaptability, highlighting areas for optimised resource allocation and giving potential investors confidence in your business. It can also aid your strategic planning, giving you a better understanding of how different scenarios such as expanding into a new market or interest rate rises could impact your business.
Financial models can be complicated, however with the right approach, they can be designed to be easy to navigate and flexible, giving you confidence that you are making informed decisions across your business.
Extracted from an interview with Derek Neil, Partner, Corporate Finance and Sarah Ziegler, Head of Private Equity Coverage
In the current economic climate, businesses are facing two major challenges – lack of investment and the increased costs of borrowing. BDO’s bi-monthly survey of 500 mid-sized businesses reveals that more than a quarter (27%) say accessing capital is one of their biggest challenges over the next six months. Many businesses have found it difficult to raise debt as banks have become more cautious – but there are other funding strategies to consider.
Private equity investment can be a great source of funding, especially for businesses looking to accelerate growth. Private equity investors look for specific characteristics. These include the macro-economic environment and micro-economic considerations such as value, growth, margins and cash conversion. They will also look at the owner, the management team and they are particularly drawn to recurring revenue models and predictability in cash generation. The relationship can be mutually beneficial, with the potential for highly rewarding outcomes when the interests of the business and the investor align and work together effectively.
There are certain considerations that come with attracting and accepting private equity backing. Private equity investors have high expectations and bring a different way of working to any business. They are looking for a high level of professionalism and transparency, which can bring challenges to some businesses where there may be a need for improving financial reporting, a more complex structure, and the need for more technical accounting. This means preparation is key and you may need to invest in the technology, processes and people in your finance team to deliver that crucial financial information prior to and after a deal.
Extracted from an interview with Dr Tauni Lanier, Director, Sustainability & ESG HUB
ESG can no longer be considered an add-on as it is becoming increasingly important to consumers, stakeholders and investors. So if you want to grow your business in the most stable and resilient way, ESG factors need to be an integrated part of your commercial growth strategy.
It is important to remember that ESG is not just focused on carbon footprint reduction – it covers a huge range of environmental impacts, your business social contribution and issues around ethical behaviour and corporate governance.
Proactively addressing ESG issues can have a serious impact on your bottom line. Practices such as adopting greener energy and focusing on employee wellbeing to reduce employee turnover can result in long-term cost reductions. And a strong ESG focus can open up innovative opportunities and give your business a competitive advantage – resulting in products and services that consumers are willing to pay a premium for.
Taking time to explore and understand what ESG means for your business can help clarify how your ESG strategy can effectively support your core commercial ambition. Engaging with investors and scanning the consumer horizon will help you understand the environmental and social issues that are important to them, as this can help your business create long-term value and ensure growth in a world where priorities are changing.
Extracted from an interview with Zoe White, Senior Manager, Risk & Advisory Services and Frederic Larquetoux, Client Service Partner, Financial Reporting & Corporate Reporting Advisory
The need for ESG reporting is not only driven by changes in the regulatory landscape but is becoming more investor-sensitive. Businesses looking to attract investment need a robust ESG strategy and the capacity to report against it. If an investor thinks your business model will be invalidated by changes in regulation or consumer behaviour, you will struggle to secure funding.
It is necessary to back up any claims with well-defined and assured data so you can demonstrate exactly how your business is honouring its ESG commitments and, in turn, give investors confidence in the future of your business. More investors now have minimum standards on ESG, so these forward-looking funds will examine whether your business is operating in a way that will comply with potential future legislation, as businesses with strong ESG factors are now being considered less risky and more sustainable in the long term.
With that in mind, it is crucial to get under the skin of the legislation, standards and frameworks and not just see them as a compliance or box-ticking exercise. It should be about understanding how operating as a sustainable business is crucial to building long-term financial resilience.
Sustainability disclosure is no longer something you can afford to delay. It is important to ensure your operating decision-making aligns with the ESG expectations of investors and stakeholders to help you stay ahead in a challenging market.
Although uncertain economic times can bring a level of risk, forward planning and robust strategies can make it possible for businesses to maintain stability and encourage sustainable growth, all while balancing ESG priorities.
