Identifying the danger before it hits

Oct 7 2009 by Chris Stott, The Journal

AS the economy appears to be entering a new and, hopefully, more positive phase, and we leave behind the anniversary of the Lehman's collapse - the point at which the banking market froze - it's a good time to take stock.

In doing so, it’s clear just how comprehensively the agendas of the region’s business leaders have evolved over the last 12 months.

Before Lehman’s downfall, growth dominated most business agendas, now the corporate agenda focuses on risk and cash instead of profit – re-trenching businesses back to the traditional disciplines of stability, sound funding and efficiency.

In addition, good CEOs and owner managers are keeping a closer eye on the fast-changing commercial and competitive environment, in which the change from robust to distressed can happen quicker than ever.

The gaps in Eldon Square and the Metrocentre – left by the recently demised Zavvi, Principles and Woolworths – make that point.

We are asking our clients whether they have appropriate early warning systems in place to avoid their business slipping down the accelerating decline curve, and whether their key performance indicators are, and should be, the same as 12 months ago.

Contacts that have been slow to grasp the nettle tell us this was because they were either unaware of the magnitude of the issues they faced or that they wrongly believed they could handle their issues alone.

We are advising clients to identify potential problems when they are still on the horizon and plan courses of action early to preserve value and save cost, distraction and time.

A recent client we worked with was able to stabilise a potential covenant breach situation and divert an independent review of their business after we identified early warning signs.

The region’s business leaders should be prepared to answer challenging queries from key stakeholders and to recognise who these now are.

Good housekeeping and being on the ball in terms of the likely impact of forthcoming headwinds are key to ensuring the region’s businesses survive both the remainder of the recession and the recovery that is starting to be gleaned, ready to thrive in the future.

Chris Stott, associate partner, transaction services, KPMG, in Newcastle