Why Strong Foundations Matter

We are facing another sustained recession and to ensure that your business not only survives but thrives through this difficult time it is vital that you have strong foundations.


Having strong foundations in place will provide more opportunities for your business and sets you up better for times of change. Our recent podcasts Making A Successful Exit Starts Earlier Than You Think with Paul Netto of Equifino, and Helping Owners Meet The Challenges of Struggling Companies When They Hit Their Lowest Point with Sam Talby from undebt, provide practical advice to help business owners understand their objectives, lay foundations, and get the best possible outcomes.


Cashflow really is king, and Sam emphasises the importance of doing a ‘cashflow forecast’. If in doing so you are seeing a decline or about to hit a funding crisis, then you need to understand and analyse the reasons behind it, often at a deeper level – is it a fundamental problem with the way your business works?. Making sure you have enough in reserves to ‘ride it out’ or it will end up causing all sorts of problems for your business not only in the short-term but could impact the long-term direction and profitability


Both Paul and Sam advise business owners that they need a better understanding of what is generating profit and what are the key drivers within the business. You have to know where your peaks and roadblocks are, not only regards to your customers but with your suppliers as well and those beyond your control such as seasonality or a market issue.

Do your financial due diligence and work out what you can spend and where to ensure that your business continues to do well even in times of crisis. Always have a plan B.



How do you build value in your business?


Even if you are not considering an exit, you need to understand where the sources of value are in your business. Take measures to ensure that the financial performance is as healthy as it can be and ensure you are not stripping that value away somewhere else.

It can be tempting in a recession to cut back on marketing, research and development, training, however, these could be the things that help you stand out against your competitors. 


Why would you cut down on activity that generates sales if you are a sales led business?


Maximise Your Options

A strong foundation would be to ensure that you have your exit plan in place. It is never too early to start planning and not all exits will be on your terms, so it is important to understand what options you have.


There are many different exit options that you can choose from – such as a management buyout, a trade sale, an EOT and researching the advantages and disadvantages of each is imperative to your planning.

Paul discusses the importance of asking yourself what your exit goals are and start developing a strategic plan to better prepare yourself. You also need to be ready and willing to make the decision to exit if it is what is best for the business in hard times.


You can read more about exit planning here.


Where Are You Now?

Are you in a growth phase or taking a long hard look and recognising a decline curve?


Sam has helped many businesses to understand that knowing where you are on the curve can really help you evaluate what your real options might be and effectively strategise what your next steps are. Some of the tell tales signs to understand where you are, could be whether there is growth in your competitors, a decline in demand, an increase in investing in new products and services.

Once you’ve determined where you are, you need to understand how visible the situation is. When facing a crisis, businesses need the option of time, as the more time you have, the more possible solutions you can come up with.


Sam talks about three stages of visibility when times are hard:

  • Invisibility: This is where things are kept internal. Those in senior management positions and directors will have the opportunity to find solutions. If a solution works in this stage, no one will have known about the issues you’ve faced, and you will be able to carry on as normal and you will still be in control.
  • Translucency: At this stage more people will be aware of the issues you’re facing, i.e. your employees and other stakeholders. If you go straight to cost-cutting, halt hiring, and stop marketing, people will feel uneasy and be on edge. Instead, you need to create a plan to help restructure the business and pinpoint where the problems are allowing you to understand the solutions. This is where cost analysis can be really beneficial.
  • Visibility: This is the final stage of awareness, where everyone knows, the banks, lawyers, customers, etc. You are on the decline or have hit a roadblock such as a loss of cashflow, lost a key customer and things have become more and more difficult. At this stage, things can often result in an exit, and possibly not the one you had planned for.


Business owners often fail to realise where in their business they are generating value due to a lack of planning and a lack of investment into innovation and growth. Instead of long-term plans and working towards strategic business objectives, they have short term focus, determined to just ride out the storm. When facing a crisis, it’s tempting for leaders to stop investing in their people and they can often find that their employees and their roles are not aligned, finding their team often in the wrong positions and facing a lack of growth. This can all come down to not fully understand the real sources of value, these are a unique combination of strengths that give an advantage, such as a strong brand, customers in a range of markets, or regions, specialist skills in the workforce, cash reserves, collaborative partnerships, strong pipelines and R&D and new products. These are the strong foundations and when in place gives owners and their business structure, time and options to progress, helping them not only survive a crisis but the opportunity to grow and thrive during throughout the hard times leaving them in a better position afterwards.


If you want to hear more from both Paul and Sam, they will be joining hgkc founder Kim Jones on November 29th at Square Works Bristol in our latest roundtable How To Thrive In A Recession, where they will be discussing the importance of having foundations in place. The event can hold 15 people so book now to ensure your space.

Categorised: Managing Risk

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