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When Banks Are Inflexible, How Does Your Company Survive the Credit Crunch?

Companies / Credit Crisis 2009 Feb 16, 2009 - 02:09 PM GMT

By: David_Haikney

Companies Best Financial Markets Analysis ArticleHow 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

www.warfielduk.com

David Haikney BSc ACA is Managing Director of Warfield Investments Ltd ( www.warfielduk.com ), providers of UK Interim Management services and solutions.

© 2009 Copyright Chris Tew- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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