Plans B and C a must in case of W

Oct 14 2009 by Chris Stott, The Journal

EVEN as economic indicators start to signpost emergence from recession, there are a host of headwinds that the region’s business leaders should take into account as they begin planning for the 2010 financial year.

The primary corporate agenda concerns are economic uncertainty, fiscal tightening and funding.

Hopefully, the economy is moving towards an upward curve. However, economists are not yet ruling out a “W” recession, which may leave many feeling they have taken two steps forward and another back.

In such an uncertain economic environment, we are advising clients to prepare plans B and even C, as plan A may not be enough for management teams seeking to enable their business to maximise the opportunities presented by a newly growing economy but without overstretching their finances.

This is a cashflow tightrope that claims scalps as recession eases, even if growth is sustained, never mind if it falters into a W.

Fiscal changes such as planned increases to VAT and national insurance contributions mean businesses will see their margins eroded by tax take.

At the same time, the cashflow advantage of deferred VAT and PAYE payments many have benefited from in recent months is now ending.

Funding and debt issues top agendas as refinancing requirements grow increasingly urgent and – thankfully – possible, with several banks back in the funding market.

Funders will continue to focus on cash, so management teams must demonstrate a robust understanding of their working capital drivers and threats and provide accurate and up-to-date forecasts.

After a period of activity concerned with business survival during the recession, thinking strategically becomes more important now as new players emerge, consumer habits develop, and adopting new business models such as alliances rather than outright ownership become reality.

Such reviews will, for some, involve identifying what is core versus non-core and deciding whether to ditch non-core assets to focus on the most significant future opportunities.

In the face of this new agenda, those running the region’s businesses should ensure they are benefiting from collaborative working with key stakeholders and advisers to help spot the hazards on the road ahead – of which a good number remain.

Chris Stott, associate partner, transaction services, KPMG