We don’t want to pull punches; this pandemic is a big problem. The interplay of how we protect lives versus the economy is unprecedented, yet essential. When this crisis finishes the economic fall-out will be huge, with a real drop in gross domestic product. In the 2009 credit crash, the UK saw a drop in GDP by 5% and this could easily be worse. Leaders, however, assess the odds then drive ahead. What actions can you take against the volatility, and where do cash-flow, strategy, investment, finance or mergers and acquisitions fit?
So, let’s punch back:
- Attack is always better than defence: By that, we mean be proactive and even as you cut costs, do so with an end in mind. Have a positive attitude, control what you can control – don’t panic, think hard. How can you gain from this going forward, where is the advantage? To compare it to the game Chess, which pieces on the board can you move to win, even if you will lose some in the winning? The player who thinks several moves ahead invariably wins.
- Business plan and model first, loan second: Assuming cashflow is affected, can your balance sheet take the hit and how long for? We can help you access the Coronavirus Business Interruption Loans; but, should you borrow money? Only if your business model is redesigned to take account of the reduced trade that will inevitably result from the economic fall-out. Use the time to redesign your business and create a business case that alters the model. What can you outsource? Can you run on reduced headcount? What product lines are low margin and distracting? Which customers should you say no to? Answer these questions, then go into the bank showing the attack plan. Avondale have created a CBIL business plan service that checks eligibility, plan and structure and helps you correctly apply and secure the right CBIL loan on the right terms.
- Consider Equity: We have an exceptional database of high-quality equity investors. Some will be value play, but is it better to own 50% of a business well backed with vision, or 100% of a zombie company, wounded with high debt and flawed capital structure? We currently have two companies we have taken from engagement to launch in a week, with equity investors already engaged in discussions. This is a pragmatic attack where clients with highly pushed cashflow would rather take the longer view and have deeper pockets behind them. They understand that in crisis, teamwork wins.
- Carry out Mergers and Acquisitions: With any drop in GDP (economic decline), any sector will always end up with too many companies scrabbling for less business; inevitably this results in lower margins. The response is to then consolidate. Carry out transactions that create economies of scale (cost savings), synergy (cross-fertilise sales), shareholder value (increase EBITDA and thus multiple) and positive disruption (change market dynamics). Coronavirus profits can to a certain extent be ring-fenced in deals and deal structures created that continue to drive value. Whether buying, selling or merging there is a real opportunity for conversations. Transactions can be agreed in principle but finalised as more visibility is secured on the effects of the lockdowns. Long term values may go up, as too much capital chases too few quality companies. Quality built from design and purpose always works.
- Look ahead: Too often business leaders ‘work-in’ the business firefighting and they don’t, therefore, have the time to design better businesses. Coronavirus or not, the world was volatile and transforming. Unless you embrace digitalisation and positive disruption, problems are simply stored up. Yes, this is a big interruption, seismic even, but the key questions still abide: what does your customer want now, and perhaps, more importantly, tomorrow, and how can you place your business ahead of market demand and competition, rather than chasing it?
These are strange times. We live in an age of superabundant capital. That means there is a lot of cash and no yield. With calm heads and conversation, buyers, sellers and investors can gain in adversity. Forgive the analogy, but so long as you have enough water (cash), we can get fit (design businesses for advantage) whilst we walk across this dessert (coronavirus lockdown). There may be some sunburn, but take a hat (advice). At the core, quality emerging mid-market companies need to survive, then thrive. SMEs (less than 250 staff), employ some 23 million of the workforce in the UK and this will be more essential than ever after the Pandemic. Clear heads always win in a crisis. The word leader comes from the Old English word ‘lædan’ meaning ‘to go before as a guide’.
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