The economic news in the UK and abroad has not been pretty since the start of 2019. UK retail and manufacturers (with automotive at the forefront of the bad news stories) are suffering especially badly, but a common response at present seems to be to blame external factors for poor performance with the ongoing uncertainty over Brexit to the fore in this regard.
While the lack of an agreed deal to leave the EU and the seeming increasing prospects of leaving with no deal in just 6 weeks’ time is one factor, the truth, whether you are pro-leave or remain, is that there are many more underlying reasons why some industries and particular businesses are suffering.
Furthermore even if Brexit was wholly or largely to blame for a downturn in sales and performance, writing letters to government and protesting in the media is hardly the best way to address the resulting issues, nor does it provide a likely path to improved performance.
With 6 weeks’ to go we are now in the critical red zone for supply chains and export delivery timescales for a whole host of industries in the UK.
At BM&T we have been working with businesses for many months on how to address operational and financial issues that may result (or in some cases already have) from Brexit and the broader slowdown globally, but also on addressing the underlying issues that already existed, but which have been hidden by the remarkable levels of liquidity in the market over the decade since the financial crisis.
When money is easy to come by the incentive to be as efficient, productive and ultimately as profitable as possible and, to be honest, for key individual stakeholders and management to act in the best interests of the company and its full body of stakeholders collectively, rather than for individual gain, tends to go missing. When problems can be temporarily solved by a fresh injection of low cost money and or restructuring of the balance sheet to postpone financial problems to another day, the drive to solve the underlying operational and managerial issues which cause the financial issues does sadly not exist.
Well, now money is tightening, hard Brexit or not. In our experience even sources of funds who traditionally would take on the most distressed situations are tightening criteria or even moving out of distress entirely as they judge the top of the credit cycle to be here or behind us. Businesses should be acting now, on areas they can control and not finding excuses from external issues outside of their own direct influence.
Businesses need to focus on each line of their profit and loss account and drive improvements in margin and embed risk mitigation from top to bottom:
- From a sales perspective ensure your product or service is at the cutting edge of what existing and potential customers will be looking for and has clear USPs over competitors and there is a development plan in place to attain or retain such a position over the next 3 years
- Where certain customers or markets are clearly declining or at risk, research and develop clear strategies to expand to new ones and capture market share off competitors.
- Review efficiency and productivity throughout your cost base – supply chain, production processes, ‘back office’, sales & delivery….
- Ensure you know the potential impacts on your supply chain and export sales from Brexit and other current risk factors and have plans b, c and beyond developed to cover for potential issues
- Know what steps you will take to restructure the business if despite all this sales slump, tariffs put pressure on margins etc and have a plan ready to go and the resources – quite likely including external support – ready to deliver it.
- Perhaps most importantly engage early and clearly with your key stakeholders, not least your employees, to ensure their understanding and support and give them the opportunity to add value and contribute and own the changes themselves.
One manufacturing client we worked with in 2018 recorded a record quarter to 31 December from a net margin perspective and a record sales month in January as a direct result of steps our team helped to design and implement. This in an industry where all its competitors are suffering and where it too was in danger of hitting a liquidity crisis in the first half of the year. As a result their liquidity is now in a healthy enough position to ride out any external impacts over the coming months, though they also have already taken clear steps and have other clear plans ready to implement to deal with both predictable and unexpected shocks. Crisis and challenge also provides opportunity if you act quickly and decisively against your competition.
Creditors and shareholders should be carefully reviewing and probing management’s actions and capabilities in these areas and not just judging against top line expansion or perhaps cutting costs quickly and deeply in more difficult times – it is a more complex picture than that in any business, yet we often see such blinkered focus. Where these management competencies are not strong enough, drive change either through replacement or supplementation.
At BM&Twith our hands on, senior, performance improvement, integration, turnaround and restructuring executives, and with access to 1,600 interim managers across a multitude of industries and niche skillsets through our subsidiary business Interimconnect, we are ideally placed to support these requirements in any healthy, distressed or transactional situation where improvement or transformation is required.
Act now and not when it is too late and value-destroying insolvency processes or giving up control to aggressive distressed investors become your only options.
Matthew Quade – Managing Director, BM&T
19 January 2019
