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10 tips to protect your organisation’s financial health

Author: ICAEW Insights

Published: 26 May 2022

As multiple pain points impinge upon the business community, what steps should CFOs take to safeguard their firms from current challenges?

A national insurance hike, a cost-of-living crisis, inflation at a 30-year high, business energy costs spiralling by almost 100% – and now, mutterings of an imminent recession. Let’s face it, any one of those factors on its own would be enough to give CFOs sleepless nights. But to have them play out all at once means protecting your organisation’s financial health has never been more important.

It’s at times like this that the mind can scramble without necessarily managing to pin down any concrete solutions for the sort of belt-tightening, reassessing, ship-steadying and fresh thinking that the current climate demands.

Insights has enlisted four experts to settle CFOs’ nerves and put them on the right track. Here are their tips:

1) Think tactically about price changes

“Price increases are a given in any inflationary environment,” says Helena Young, Senior Writer at business advice hub Startups.co.uk. “However, many SMEs that we have spoken to are understandably reluctant to introduce them. Raising prices amid inflation has the potential to hurt customer relationships and, ultimately, profit margins.”

A workable alternative to raising prices, Young suggests, is to apply optional fees to specialist service offerings or the activities that put the greatest strain on your supply chain – for example, a surcharge on next-day delivery.

2) Seek asset finance to upgrade machinery and/or fleets

“Firms can take out asset finance to keep a handle on rising costs,” says James Heath, CFO of business lender Allica Bank. “By using this funding to purchase new or upgraded machinery, a firm could boost its process efficiency or enhance the customer experience.”

Asset finance can also be put to green uses. “For example, many firms are investing in sustainability by electrifying their vehicle fleets. Along with the obvious benefits to the environment, this can have a dramatic effect on the cost base,” Heath adds.

3) Harness data insights to track profits

“Rigorous data can help a business enhance its understanding of the profitability of specific product lines, markets or customers,” says KPMG Consulting Partner Phil Murden. “Some firms are surprised to learn who their most profitable customers really are, as it’s often not necessarily their largest.”

Murden points out that data can also inform smart decisions to retire less profitable products and to focus a firm on markets that are home to the best opportunities – with a view to potentially exiting others.

4) Revisit finance arrangements and contracts

“Renegotiate debt interest with lenders, or market test alternative solutions,” Murden adds. “Plus, examine contracts to explore whether they should also be renegotiated. A growing business could secure improved rates for the services it receives – for example, with its managed IT service provider.”

5) Consider hedging to mitigate currency risks

“If your firm deals with multiple currencies, there is always a certain amount of risk involved, as values are subject to change,” says Simon England, Managing Director of Equals Money. “Hedging is an effective way to mitigate that risk – particularly in SMEs, for which a small fluctuation in margins can mean everything.”

Making unprotected decisions based on those fast-changing figures, England warns, is essentially a form of gambling. “So if a business can put in place any relevant safeguards – especially in its earliest stages – it should.”

6) Look for cheaper supply chain options

In the past year, shipping costs have trebled – and even though container costs are now falling, they remain 500% higher than they were before COVID-19. “Extra transportation and materials costs are hard enough by themselves, but are particularly painful in the context of inflation,” England says.

“Firms must modify their supply chain approach to reflect the current situation – whether by changing partners or rethinking their offerings. SMEs in particular may need to consider more local suppliers, even if that means a less international customer base,” he adds.

7) Review salary and compensation schemes

“As the cost-of-living crisis intensifies amid high inflation, a focus on salary and compensation schemes could prove useful,” says England. “As well as preventing skilled staff from looking for better-paid work, it will save the business the costs of rehiring.”

However, senior figures should remember that offering competitive salaries is not the only way to retain staff: flexible working, more generous company benefits and longer holiday allowances are all great incentives, too.

8) Audit your staff roster

“Increased national insurance rates, coupled with a rise in the minimum wage, mean it may not be feasible to keep your current staffing levels,” Young points out. However she warns that redundancies are a highly undesirable option and given the UK’s current talent shortage, cutting roles could do more harm than good. Another way to limit labour costs is to reduce staff hours to short-time working, Young suggests: “For example, you may ask an employee to work a three-day week, instead of a five-day week.”

9) Consider your office space

“Purchasing your premises is a big decision,” Heath notes, “but it can be well worth it. Monthly mortgage payments often end up being less than rent, which can be a boon for cash flow. Meanwhile, locking into a long-term loan can provide greater stability for financial planning by protecting against short-notice rent hikes, or the need to hold money as a security deposit.”

At the other end of the scale, if staff are mainly working from home but you’re not ready to wave goodbye to the office just yet, flexible office space providers such as coworking giant WeWork can be a good hybrid solution,” says Young. “Coworking is typically more economical than traditional office space. As a tenant you have greater flexibility should you run into financial difficulty – and you won’t need to take on responsibility for common infrastructure, such as cleaning or security services.

10) Conduct frequent spend analyses

“Cutting too many costs too quickly can harm a business as much as financial wastage,” England cautions. “So regular spend analyses will help firms build up a clear picture of where cash is going and enable them to spot opportunities for effective cost cutting.”

He adds: “This is particularly helpful for catching ‘tail-end spend’: repeat, low-level expenses that companies often regard as insignificant but that, if left unaudited, can easily build up and overwhelm accounts teams.”

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