Badges of Success in today’s changing world

The impact of global events on today’s business environment is unmatched over the last seventy years. 

From the Covid-19 pandemic to the Russian invasion of Ukraine, major flood events, rising geopolitical tensions and a Federal Election, businesses are feeling the deteriorating effects of this unprecedented chain of events – and the practical impacts can be crippling.

Our clients and peers have cited skyrocketing coal and energy costs, delays on imports and a lack of transport availability, as just a few of the challenges threatening the survival of their business.

So what do we do about it?

Historically, the obvious answers have been:

• Pass input price increases onto your customers;
• Seek alternate inputs; and / or
• Hedge your input costs.

However, given the speed and volatility of the changes, some of our clients have simply not been able to achieve one or any of these historical solutions.

What else can we do  – what are the badges of success, or failure?

We suggest the following:

• Variabilise your cost base wherever possible.  This will require difficult and uncomfortable converations with employees, unions, lessors and suppliers.  You need to ensure you can flex up or down as required, because it is likely cost spikes or supply disruptions will make BAU trading a loss making proposition.  The counter factual for the stakeholders is simply sustainable continuation for your business – you will not survive if you don’t make changes.
• Talk to your customers – we understand that even some of the traditionally steadfast retail operators are currently genuninely considering accepting and passing on price increases.   Obvioulsy any altruistic motive is unlikely and the practical reality is you may well be the only, or a non-replaceable, supplier.
• Be opportunistic in both input volume and pricing.  Where opportunities present in the market to take product at ‘acceptable’ pricing (as distinct to historically normal pricing), seize the moment as the mantra for now is survival as opposed to profit: live to fight another day.
• Working capital – aggressively manage your working capital and explore non-traditional lending options.  Cash is king – this will never change as a business rule.
• Don’t overreact – whilst this message may appear at odds with the above, you are managing ‘lumpy’ conditions as opposed to fundamentally changing your long term business model.
• Communicate – to all of your stakeholders as everyone is in the same boat.

We have seen a number of clients utilise a mix of these strategies to manage through these uncertain times.  For example – fleet owners negotiating utilisation based lease charges for their fleet and ensuring new customer contracts not only include a rise and fall for fuel, but also shortened payment terms.  Some retailers are now acknowledging or accepting stock outs as an unavoidable consequence of the current situation – which historically has been seen as a fatal flaw.  The alternate of being left with excess, out of season stock is not acceptable from a cashflow perspective.

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The TMA

The Turnaround Management Association (TMA) encourages boards of directors and management teams of financially stressed businesses to engage early with turnaround professionals. Our aim is to guide companies from uncertainty to stability.

Our experts have the tools to help your business navigate through uncertain times. Search our member directory to find experts in business recovery, corporate turnaround and restructuring.

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