Immediate challenges and long-term options call for strategic thinking

In recent years domestic and global market challenges have forced business owners to sharpen their focus on cash-flow management. The past 12 to 18 months have been tough for everyone, with rising interest rates across the euro zone and inflation soaring globally, Ian Barrett, managing director at KPMG’s Restructuring department, points out.

“This has led to some businesses across virtually all sectors experiencing additional financial difficulty and simultaneous challenges on an unprecedented scale,” Barrett says. “Over the past few years many businesses managed to avoid insolvency with the help of Government supports, tax warehousing and patient creditors. However, the environment has now changed, with supports having largely ended and tax warehousing due to end in May 2024.”

Don’t ignore financial warning signs

The worst thing business managers can do when such challenges arise is to ignore them, Barrett warns. “Prudent business owners know the warning signs and take decisive action when needed,” he says. Companies should closely monitor their trading performance and financial position, Barrett advises; financial and cash-flow projections should be regularly prepared and reviewed, stress tested for adverse scenarios and adjusted based on events that have arisen since they were originally prepared.

“There needs to be a close focus on the working capital position of the company and whether it be improved,” says Barrett. “For example, can debts be collected quicker? Can stock levels be reduced to more appropriate levels and are credit terms manageable? Immediate steps should be taken to cut costs where possible to reduce losses and minimise exposure to creditors, although this might not always be appropriate depending on the circumstances for the business.” Companies should assess their current asset and financial position to determine their debt-financing requirements.

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“In terms of arranging finance, there are various lenders in the Irish market lending to businesses of various sizes, from the traditional pillar banks to newer alternative nonbank lenders who specialise in certain types of lending,” says Barrett. “There are also several loan schemes available to various types of businesses through the Strategic Banking Corporation of Ireland or administered by Irish financial institutions.”

Deal with succession early

Succession planning is not something that can be put to one side, despite the temptation to do so and prioritise the urgent over the important, counsels Alan Bromell, tax partner and head of Private Enterprise at KPMG.

“Ultimately not dealing with it can erode long-term value. For privately owned businesses it can have two elements: at a shareholder level – in particular for family-owned businesses; and at a management level,” says Bromell. “The latter is particularly important where the next generation of family owners are not involved in the business operations and it is likely that external talent is needed to drive the business performance into the future.”

Bromell says granting an equity interest to management is now a common incentive or retention tool. However, he advises that “combining management and the next generation in the family as shareholders can bring complex commercial, legal and tax issues, and it is critical not to overcomplicate”.

But if dealt with early and with the right attention, succession planning “can be a key driver in allowing a business to prosper and achieve its strategic ambitions”, such as growing through merger and acquisition, says Bromell. “Conversely, if not addressed, it can cause stagnation and, in some cases, deterioration of a business.”