Turning around your business: From resilience to success

10 July 2020

Andrew Fielding, National Leader, Business Restructuring |
Sebastian Stevens, National Leader, Private Equity
Partner, Corporate Finance

The heart of the COVID-19 pandemic was all about business resiliency. However, while we don’t know what’s around the corner for our economy, we do know that to remain viable as a business, organisations must at some stage switch from their focus on resiliency to success.

In our Rethink audio series, Business Restructuring National Leader, Andrew Fielding and Private Equity National Leader, Sebastian Stevens discussed ways to turnaround a business as Australia embarks on the new operating environment.

How to transition from resilience to success

1. Cash flow

Organisations have to go back to their basics, which means returning to cash flow. We’re all uncertain how quickly the recovery from COVID-19 is going to be, so we don’t know how long it will take for revenues to return to pre-COVID-19 levels. Leaders must be able to put some cash flow scenarios together and look at the risks associated with their capital.

2. Supply chain

Leaders must ensure their supply chain is secure. After all, suppliers will have likely gone through the same thing you have, and you need to make sure that you can supply on time as required. Look for opportunities - there may be new suppliers available that can supply for a better price. Take these advantages when you can.

3. Customer base

There is no more important time than now to be looking at credit terms. Do you have retention of title clauses in your documentation? Do you have personal guarantees? Applications completed by clients? More so than ever you’re going to have a delay in payments and probably an increase in default payments, so you must ensure you are protected.

Don’t waste a crisis

Crises are tough, but they are also an opportunity. When we look back at the GFC, some of the best M&A investments were made not long after the crash.

It’s hard to predict how the market will go, but we expect there to be an increased level of M&A activity in the coming months as companies look to take over competitors in distress, seize opportunities or make strategic plays and add bolt-on acquisitions.

We anticipate a number of larger organisations will also focus on the core of their business. Shaving off non-core businesses and assets will allow these companies to focus on the elements in which their management team has the best skills, and to free up cash flow. This enables them to shore up their balance sheet and get ready to make those opportunistic plays that might be around.

Business monitoring moving forward

In the same vein as the above, business monitoring is also going back to its basics.

Profitability is no longer the attribute it was, as many companies are simply not profitable at the moment. Instead, cash is king again. For example, one of the new questions leaders are asking is “how long is their cash runway?” As in, how long can an entity support itself before running out of cash?

To turnaround your business, whether through shoring up the balance sheet or acquiring new entities and assets, you must have a handle on cash flow, and be able to predict future scenarios to ensure you can cope with cash demands, and the changing demand for your services. This is a time to focus on your core, to de-risk the business and increase agility.

If you need help to Rethink your future business plans and turnaround your business, our BDO experts are available to help you define ‘what’s next’.

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