Looking Beyond: Optimise your capital structure and execute your revised strategy | Insights | McGrathNicol
22 May 2020
This is the final part of our series focused on strategy. So far we have covered why you need a new strategy, some of the external factors that will shape your thinking, practical considerations in remobilising your business, how previous assumptions used to manage supply chain are no longer relevant and methods to capitalise on the key strategic opportunities that may be in front of you. Now we shift our attention to crucial funding considerations and the importance of executing your strategy.
Evaluate and optimise your capital structure
Navigating the post COVID-19 environment will require increased flexibility around funding. Many of the topics we have covered will require additional funding, whether it be working capital to remobilise your business, headroom to navigate potential future shocks, investment in people, process or technology to align your business model with changing consumer preferences, or taking advantage of strategic M&A opportunities to set you apart from the competition.
There will be a number of additional funding options available to you, including raising equity, additional debt facilities through current lenders or non-bank lenders and convertible and hybrid instruments. The complexity and cost for each of these options vary significantly and you will need to be prepared and coordinated to achieve success. In evaluating your capital structure, consideration should be given to the below areas:
Strategy – A coherent and well-articulated strategy will encourage confidence in potential investors. It is essential that you clearly outline how your business will navigate the opportunities and challenges ahead.
Robust financial forecast – A concise integrated model will allow you to assess your current and future funding requirements and determine your optimal capital structure. Many businesses still struggle to completely understand their balance sheet and cash flow. Those who do will be in a far better position to capitalise on opportunities.
Communication – Start now and establish a clear two-way communication channel with your investors and financiers to bring them on the journey. This will be well received and allow input and feedback for the path ahead.
Seek advice – Sourcing additional capital can be complex and often expert legal or financial advice can help expedite and overcome challenges.
We started the series talking about some of the key elements of strategy including aligning the business around a common measure of success, identifying the key strategic themes and setting a clear direction, and developing and executing a plan. The final element, execution, is critical and often overlooked as people are distracted by day to day activities. There is a fantastic quote from Peter Drucker, who talks about strategy and plans only being good intention unless they immediately degenerate into hard work.
The ability to execute will be key to success whilst navigating this very complex environment. In thinking about execution, there are several areas for consideration:
Strategic Plan – The strategic plan will be the mechanism from which your strategy will be put into operation. Your strategic plan will need to be interlocked with operating plans, be mature enough to ensure discipline and accountability, but agile enough to adapt to challenges or opportunities.
Governance – Strategy is a journey and will need to be evolved and adapted as opportunities and challenges materialise. Establish a new governance framework and cadence that provides a forum to discuss the strategy regularly, identifying opportunities and risks, and re-prioritise where required.
Innovation – Innovative methods to implement programs of work will greatly improve efficiency and overall impact. Consider agile work practices, zero-based concepts and technology to aid with implementation.
The current environment is unprecedented and so far many of us have been understandably in ‘crisis mode’ tackling the multitude of challenges that have emerged. Amongst many things, business models have been permanently impacted by changing consumer preferences and previous business rules around supply chain have been challenged with a number vulnerabilities identified. The road to recovery will also provide many opportunities, however, it remains uncertain and will no doubt take a number of twists and turns as we move through the next 6-18 months. Now is the time to start thinking about what the impacts of COVID-19 mean for your business and its strategy in the medium to longer term.