Can accessing capital help CFOs add value in uncertain times?

How CFOs can add value through uncertain times | Part 3: Accessing capital  

During times of economic uncertainty, CFOs and finance teams play a crucial role in adding value to their organisations. In our ongoing series ‘How CFOs can add value through uncertain times’, we’ve explored the CFO’s role in reviewing supply chains and analysing customers and debtors - now let’s focus on accessing capital.

Capitalising on business opportunities 

Access to capital through debt or equity is pivotal for a company to withstand external impacts during uncertain times. Difficult economic conditions often lead to financial distress and consolidation in specific industries. Strong balance sheets and reasonable cash reserves enable organisations to manage negative impacts and empower them to create and pursue opportunities in downturns.

The intention is not only to survive a downturn but to thrive. In times of uncertainty, opportunities that may arise include:

  1. Winning bids for work when competitors face setbacks 
  2. Demonstrating a strong financial position to potential customers, increasing the likelihood of securing their business 
  3. Purchasing distressed businesses, intellectual property, or assets
  4. Attracting top talent to the organisation.

Optimising the business’ capital structure 

As a CFO or finance team, adding value involves optimising the business’ capital structure with a balanced mix of debt and equity. The questions you should be asking now are:

  1. Are you currently securing the best finance rate available?
  2. Is it appropriate to utilise any cash reserves to reduce the level of debt?
  3. Are any cash reserves being utilised to generate passive income?
  4. Has our current financier been briefed on our strategy, and are they supportive?
  5. Are our existing debt facilities structured appropriately?
  6. Is there sufficient working capital within the business to handle external shocks or unforeseen circumstances? 
  7. Should we explore capital raising in the next 12 months to fund strategic initiatives or acquisitions?

In addition to asking the above questions, there are a few key steps that companies can take to find their optimal capital structure: 

  • Analyse cash flow and profitability to determine how much debt they can reasonably take on without putting themselves at risk of default. This will help identify the range of debt-to-equity ratios from which the company can operate, i.e. too much debt can lead to a higher cost of capital, while too much equity can result in a dilution of ownership and control.  
  • Consider current market conditions including monitoring interest rates, as well as assessing the availability and cost of both debt and equity financing in the market for the industry. 
  • Consider the characteristics of your shareholders and alignment on strategy for growth, such as their ability and willingness to take on risk. For instance, if a company's shareholders are risk-averse, it may be more prudent to lean towards a lower debt-to-equity ratio to provide greater security.  
  • Perform benchmarking against industry and peers to determine the ideal capital structures for comparable businesses. Including risk and return analysis associated with various capital structures and assessing their impact on long-term growth and profitability.  

Strategic tools for capital structure optimisation

Once the above steps have been taken, companies should ensure they have the right tools available (financial modelling tools and industry benchmarking) to regularly assess and adjust their capital structure as the business environment changes. This includes monitoring shifts in the global economy, industry trends, and regulatory changes. Companies that remain flexible and adaptable in their capital structure will be better positioned to navigate changes in the market and stave off future risks.  

Establishing an optimal capital structure is critical to positioning the company to capitalise on opportunities during uncertain times. Ultimately, CFOs are well-positioned to proactively manage the business’s capital position.

To explore how you can add further value to your business, visit our Business ServicesBusiness Restructuring and Debt Advisory pages. Alternatively, contact us with any questions.