Five Pillars of a Resilient Business

It’s not uncommon for business owners to lie awake at night, worrying about a raft of operational problems, from cashflow concerns to personnel pressures and everything in between.

Often, there’s precious little time for any strategic, big picture thinking amid the myriad day-to-day issues that constantly command their attention.

In reality, though, there’s really only one issue that should demand a leader’s laser-like focus from the very beginning.

And that’s the end.

Proper exit and succession planning from the outset (or as soon as is reasonably possible) will ensure a business operates according to a strict set of protocols and governance principles that will, ultimately, futureproof its entire operations, ensuring it’s able to successfully weather almost any economic “storm’’, ensure a sustainable return to shareholders and – critically - maximise the business’ value upon sale.

A potential purchaser is far more inclined to pay a higher value for an entity that can demonstrate its strategic relevance and prove its ability to respond rapidly and successfully to changes in both its internal (eg key personnel change, changes in internal processes, changes to strategy) and external environment (a key customer leaves, supplier failure, raw materials cost increase, new competitor).

These are the hallmarks of a resilient business.

In order to build resilience, leaders must ensure that they have a sophistication in their management and governance practices that reflects the sophistication in the way they should be managing the equity that sits in their business.

And sourcing independent, experienced and respected advice to help embed what we believe to be the five key pillars of business resilience into an organisation is fundamental.
The five core disciplines that lead to business resilience are:
 
  • Understanding Shareholder Value Drivers: Having a clear understanding of how a business generates cash and, importantly, how a purchaser might recognise value drivers of the business.
  • A Clearly Articulated Strategy: Creating a singularly agreed and clear approach to markets, via channels, with products and services using purpose-built business structures to maximise profit and minimise risk.
  • Risk Management: Having a practical framework to identify, treat and monitor risks to an acceptable level. This includes an ongoing process of looking at all risk types across a business (such as liquidity, operational, compliance, market, IT and reputational risks).
  • 3-Way Forecasts: We develop detailed financial models that allow businesses to understand the profit and cash impact of future changes in their business. Furthermore, they significantly help businesses with their communications with key stakeholders including banks, shareholders, directors and purchasers. It’s important to be able to clearly articulate how a business creates cash, how it’s used and what’s left over for shareholders in order to reach a favourable exit price.
  • Performance Management: We help businesses establish a routine of using all of the above disciplines to plan, monitor and intervene to ensure the plans for the business have the best chance of being met.
Understanding the set of practices around these five pillars will ensure the least possible interruption to a business’ earnings and funding position. A purchaser is far more likely to pay more for a company that not only has a clear, uninterrupted financial earning stream, but can also easily be integrated into their existing business. We help business owners to walk in the shoes of a purchaser to ensure they appreciate this perspective.

Often, business leaders will be driven to seek professional advisory services when they are beset by problems.

One such client, a commodity wholesaler, was experiencing large seasonal funding requirements. Their financial lender had grown increasingly nervous at our client’s perceived vulnerability to trade through the seasonal peaks and, as such, was reluctant to grant their request for additional funding.

We assisted by building an integrated financial model which helped articulate the complex confluence of funding influences (price, volume, sales channel, debtor payment terms, creditor payment days, invoice finance facility operation) which gave their lender certainty, our client gained added credibility and avoided the costly distraction of an adversarial banking relationship.

Solid preparation and sourcing quality, strategic advice is key to building a resilient business.

The result is an organisation that can respond quickly and effectively to changes in its internal and external environment, can exploit opportunities as they arise, be able to plan for contingencies, and have reduced reliance on key personnel, who may leave without warning.

As an effective leader, the challenge is to elevate your thinking beyond the current management structure and start to imagine those stakeholders who, one day, may come with a blank chequebook and some plans.
You usually only ever get one chance at selling your business.

It’s vital you are prepared so that you can make that moment count.