BDO’s Capital Advisory team can guide you through building a resilient, forward-thinking organization. Our team can help with everything from assessing your current value proposition, evaluating your shortfalls, to advising on the best financial leverage plan. In addition, our team can introduce you to investors and guide you through a potential partial sale, full sale, or debt financing.
Published: November 25, 2021
Updated: November 25, 2021
If there’s one lesson businesses can learn from the pandemic it’s: hope for the best, prepare for the worst. This adage is sage advice as business leaders move forward through the pandemic and ask: how can we be better prepared for future disruptive events?
From geo-political tensions to climate change, companies will inevitably continue to face many risks and uncertainties. Despite this, there is a moment of opportunity and a time for leaders to reflect, learn, and build more resilient organizations. Looking back at the past extraordinary 18 months, what did the pandemic teach businesses about being prepared for disruptive events? How should your strategies and principles evolve? We recap lessons learned as well as steps businesses can take to build resiliency in their organizations in preparation for times of crisis.
Key lessons learned during COVID-19
Businesses that managed well financially during the pandemic were flexible and adaptable. They were able to see opportunities in the pandemic, and they changed their service offerings or switched their service model (e.g. from in-store to delivery). Going forward, mindsets must change from a focus on efficiency toward greater flexibility.
Businesses learned quickly that not having an appropriate financial leverage plan significantly impacted their ability to withstand an event like the COVID-19 pandemic. Businesses that didn’t have appropriate cash flow plans or projections were not able to adapt or take advantage of opportunities in the market, putting them behind the competition. These businesses likely saw a trickle-down effect–impacting everything from operations, to sales, to talent. As we’re currently seeing, these issues can take a long time to recover.
When looking for financing, businesses need to be proactive versus reactive. Without the presence of alternative scenario funding models, cash flow projections, budgets, and forecasts, businesses risk having a delayed response and consequently competing for funding during a crisis with every other business that's in a similar situation. You likely won’t be getting the best deal in the market.
When looking for financing, businesses need to be proactive versus reactive. Without the presence of alternative scenario funding models, cash flow projections, budgets, and forecasts, businesses risk having a delayed response and consequently competing for funding during a crisis with every other business that's in a similar situation. You likely won’t be getting the best deal in the market.
Clearly defining a crisis response team of cross-functional leaders, including: communications, operations, finance, and human resources is critical. This team should lead your organization by consistently assessing the current situation, prioritizing issues, and communicating with all stakeholders, including employees.
So much of effectively responding to a crisis is communication. Poor communication to employees and other stakeholders can have devastating effects on the business, reduce employee morale and productivity, and even cause reputational damage. Develop a crisis management plan that is practical, accessible, and harmonized with your business strategies.
Leveraging consumer trends and financial market data
As we’ve learned, the ability to be flexible and agile during times of uncertainty is imperative; and therefore, keeping a pulse on consumer trends and financial markets will be a key component of your strategy. The below Canadian IPO key performance indicators show IPO activity (by transaction value) increased during 2020 for a broad range of sectors, but specifically for Information Technology and Materials. 2020 IPOs also significantly outperformed the TSX (IPOs at +32.6% vs. S&P/TSX Composite at -5.5%). This data highlights that deals are happening and there are opportunities available in the market to pivot your business should you choose to take it.
Source: Capital IQ as of Sept 30, 2020 (YTD), for Canadian listings with a transaction value > CAD $1M
Canadian IPOs Transaction Value per Sector | Sept 30, 2020 (YTD)
Source: Capital IQ (Jan 1, 2017 to Sep 30, 2020) transactions > CAD $1M
2020 IPO activity (by transaction value) outpaced the previous two years, with 22 IPOs raising over $4.1 billion. These IPOs covered a broad range of sectors, but Information Technology and Industrials were most active.
Building a future-forward, resilient organization
There are several factors to building more financially resilient organizations, each of which needs to be considered as part of a cohesive set of decisions. Savvy, proactive leaders should consider taking the following steps to future-proof their business:
Step 1 - Assess your strategic vision
Strategic assessments are critical. The best place to start is simply asking: Where am I right now? What does my busines do well? Be introspective and do some soul searching. Determining your core competencies will help you build your strategic vision and navigate the path to opportunity and growth.
It’s worth noting, pivoting is not a change to your fundamental business but an adjustment to your strategy while leaving your core business intact. Your strategic direction should leverage your core strengths, failure to do so can lead to vital resources allocated to failed experiments in a time of resource constraints.
Step 2 - Build liquidity
Once you have determined your strategic vision and have begun mapping out your unique road to growth, you need to consider how to fund your vision. Liquidity is crucial to ensuring your company has the flexibility to navigate turbulent times. The key is to build liquidity that supports your best use of capital and your strategy. The following are potential paths for funding growth:
Debt structuring: Restructuring debt can have an immediate impact on the business’s bottom line. Cleaning up the balance sheet will help position the business to gain access to capital from both traditional and non-traditional lenders. If you are carrying debt from multiple lenders at different rates, consider engaging your professional service provider to discuss a strategic plan to rebalance the debt. This will open up options for better rates, more flexibility, and higher thresholds.
Non-traditional sources of capital: The pool of financial buyers is diverse—from private equity, to alternative lenders, to commercial banks. The options to raise capital for investment into portfolio expansion, operational expansion, or both, are available from many sources. Different players will have different interests, make sure you are seeking out the right fit for your strategic vision.
Step 3 - Review operations
Conducting a deep dive into the operational management of the business will uncover opportunities to improve cash flows. As a result of COVID-19, many businesses were forced to scale back staff and tighten their operations to weather the unknowns—some succeeded in doing more with less. For instance, businesses began to realize how much time was being wasted in the office versus working from home. By leveraging technology, employees were able to work more consistently. However, employers need to balance this with exhaustion as well as the importance of social interactivity and maintaining a positive work culture. Operators have become leaner when it comes to staffing, and this means more capital to reinvest into expansion opportunities that support your strategic vision.
As your business becomes more agile and better positioned to pivot, it’s important to continue to re-evaluate the strategic assessments being conducted and continue to ask: what’s working and what’s not?