Insights

Optimising Business Finance in a Slowing Economy


In this month’s newsletter we discuss the impact of the liquidity crisis on business borrowings, and provide a case study example of how to maximize your chances of raising finance.

Despite a 25 basis point reduction in the official interest rate earlier this month, and speculation of further interest rate cuts, Australian borrowers are still bearing the brunt of the global liquidity crisis, as financiers impose tougher lending criteria and pass on their ever increasing costs of credit.

Small and medium size business surveys consistently reveal declining business activity, lower capital expenditure and a slowdown in total business debt.

This being the case, now is an ideal time for business managers to review their financial strategy and ensure their business is equipped to face the continuing challenges of a slowing economy.

Below is an example of how Vantage Performance assisted a group to restructure its existing facilities to enable the business to achieve its business objectives.

 

Case Study – Project Overview

A dominant market position had led this group to become complacent, allowing aggressive competitors and industry consolidation to threaten the business.

Our assistance was sought by the group’s bank, following a series of profit downgrades and the group’s resulting inability to repay core debt.

With over $80 million in annual sales the group had more than 75% market share in its core competency areas.  Management had become distracted from the core business whilst pursuing a number of unsuccessful merger / acquisition opportunities.

 

 

 

Project Objectives

Our scope was to undertake a strategic review of the group’s operations to (1) determine whether it had sufficient collateral and cash flow to support further restructuring; and (2) how its present strategy would cope amidst continued industry consolidation and competative pressures.

 

Our Approach

Our initial objective was to assess the group’s immediate funding requirements to determine whether the bank would extend the group’s borrowings.

We determined that the group could only support the interest on existing debt until a turnaround plan had been successfully implemented.  We undertook a thorough review of the group’s historic financial performance, financial forecasts and strategic positioning against industry peers to determine whether such a plan could be created and successfully carried out, or whether a trade sale or merger should be considered.

Key Benefits Delivered

Our thorough analysis and detailed report provided the bank with an intimate understanding of the group’s present operations and strategic direction.  We also provided the group’s management team with a series of recommendations on how to turn the business around.

With a detailed understanding of the business, the bank was able to assess the group’s core funding requirements and restructure existing facilities to allow the group to capitalise upon its market position.

Our involvement transformed a potential crisis situation into an opportunity for the bank to extend its involvement with the company and participate in further industry consolidation.

 

For more information please feel free to contact one of the team at Vantage Performance.

Regards

Michael Fingland

Executive Director

 

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My philosophy is that there is always a way to solve a crisis, as long as you’re engaged early enough.

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Cooperative leadership teams that develop prioritised actions to progress towards clear strategic objectives can achieve long-term business viability.