Murmurings of green shoots coming from speculative analysts and corners of the media look increasingly optimistic taking into account the ongoing difficulties for businesses in accessing finance. At present, few companies can obtain additional funding from financial institutions to help them ride the effects of the recession. Many businesses are looking at alternative funding streams, while others have consolidated and are clinging on for dear life.
Despite the gloomy outlook for businesses in the region and across the UK the fact remains that, at some point, be it in six months or longer, a UK economic recovery will come, bringing with it opportunities for businesses which have recovered sufficiently from the effects of the recession. Companies that have taken the necessary steps during the downturn not only to cut costs, but to position themselves for growth when the downturn ends, will enjoy the spoils of a healthy business environment and enter the promised land once again. But, in order to survive, and to take advantage of opportunities later, companies cannot rest on their laurels; the rebuilding process must begin today.
For businesses to ensure competitive advantage in the current climate and further down the line, strong management and sound business credentials must be demonstrated now to rebuild. Irrespective of whether the business is treading water or swimming comfortably, examples of sensible cost cutting, divestment of non-core subsidiaries and careful cash flow management will all help nervous investors or lenders to feel more at ease in these turbulent times. Furthermore, transparency is key during the recession, so having up-to-date financial information, including realistic projections and a clear, steady balance sheet, is also essential.
To action and demonstrate the core competencies and business credentials necessary to rebuild effectively, sound advice is required. Fortunately, there is no shortage of competent advisers in the region with the necessary skill sets and experience to navigate businesses through the downturn, be they turnaround, restructuring or corporate recovery specialists. But in appointing the right firm, business leaders must be confident of their chosen adviser’s credentials in endearing their company to the right lenders and key stakeholders, while ensuring any operational changes, refinancing or investment routes are the right fit for all involved.
For businesses with a plan, government initiatives, lenders and investors are all still out there. And while lenders and investors are harder to find now than during the heady boom era, government initiatives have become more prevalent.
Under the Enterprise Finance Guarantee scheme, introduced in the Chancellor’s budget to replace the Small Firms Loan Guarantee, the Government has pledged £1.3 billion to guarantee lending to viable businesses to ensure they can access working capital and investment. The scheme supports bank lending to UK businesses with a turnover of up to £25 million and enables those who are finding it difficult to obtain finance to secure loans of between £1,000 and £1 million.
Other government schemes should also be considered, such as the Grant for Business Investment, which supports investment and job creation projects; Finance for Business, which offers flexible finance solutions such as loans and equity finance for businesses with viable business plans; and Understanding Finance for Business, which offers entrepreneurs and businesses financial advice and support in pursuing funding.
Companies with good business practices can also attract private investment to rebuild. While activity has dropped considerably, venture capital investment continues during a recession. Market conditions inevitably weigh heavily on investors’ minds, but if a business has demonstrable growth potential accompanied by attributes such as good financial planning, strong management and sustainable competitive advantage, it has a strong chance of securing support.
Asset-based lending is a viable funding option that has seen significant growth during the recession, with specialist financiers operating both outside the formal insolvency framework and through administration proceedings when part or all of the business can survive with the support of additional funding or refinancing. While this route is not ideal for all businesses, those with realistic growth potential can often be resurrected through the help of advisers and lenders who understand the company’s finances and, of course, have the ability to leverage valuable assets to rebuild the business effectively.
The current recession is, for most UK businesses, the biggest challenge they have ever faced. And for those who have, until now, failed to battle the downturn effectively, now is the time to seek advice. There is no quick fix for rebuilding. Businesses must aspire to the same principles that successful companies have always done. Only now, it is more difficult to achieve these goals. Despite the gloomy outlook, companies who straighten out their balance sheets, engage with growth markets and maintain a strong management structure can find a silver lining.