Macro-economic factors will increase cost pressures
Price inflation, supply chain constraints and high asset prices will require businesses to prioritise profitability and cash flow. Realising the benefits of any M&A activity will allow businesses to stay ahead in 2022.
COVID-19 has resulted in labour shortages and supply chain disruptions which are driving significant cost inflation for many Australian businesses. The buoyant M&A market and strong competition have also caused high asset valuations which makes good-value acquisition targets difficult to find.
As these conditions are expected to continue throughout 2022, we are encouraging business leaders to take steps now to ensure that cash flow is maintained, bottom line profitability continues, and a robust approach to business integration is in place to deliver expected investment returns from company acquisitions.
Building resilience to increasing costs requires leaders to closely evaluate the most important drivers of earnings performance and identify opportunities to reduce costs and realise efficiencies.
Business leaders must also understand the impact that inventory lead times, customer credit terms and supply chain constraints are having on working capital. This will allow more adequate forecasting of profit to cash cycles, cash flow management, and informed reorganisation of funding structures.
2021 provided opportunities for companies to reset strategies and adapt to the changes that have emerged as a result of COVID-19. Our transactions and restructuring teams have assisted management across a range of sectors to identify performance opportunities and value creation.
This year, these challenges can best be navigated by detailed bottom-up planning and reporting to drive accountability, as well as the adoption of a practical change management approach.