Did you have a chair when the music stopped? - Mazars - Ireland

We can all remember that great children’s’ party game musical chairs. There was laughter, fun, music and high spirits followed by chaos and panic when the music stopped.

The economic events of the past decade can be similarly described. In the boom years there was an abundance of confidence, laughter and high spirits but the events of the past twelve months have left us standing around a little bit awkwardly, a little bit embarrassed and a little bit lost and fearful.

Since the beginning of the downturn business people and investors are looking frantically at how the recession has impacted on their net worth and solvency. Their trading companies face reduced revenues at a time when the business is built on a high cost base following years of growth. On top of this they are facing a decrease in the value of their properties and equity investments funded by borrowings that now, in a lot of cases, are greater than the value of those investments.

The changed market conditions have significantly damaged consumer confidence and overall consumption in a variety of sectors, affecting the stability of businesses and the solvency of investment portfolios. Investors and business owners have significant dilemmas as they and their advisors seek to reconcile some of the following:

• Property Portfolio Deficits vs. Business Capability
• Business Stability vs. Personal Wealth Issues
• Long Term Business Capability vs. Immediate Cost Pressures
• Potential Loss in Asset Disposal vs. Long Term Future Risk
• Acceptance of Reduced Return on Investment vs. Project Failure
• Short Term Pricing Strategy vs. Long Term Market Position.

Understandably the scale of the issues and the competing nature of the demands in terms of personal debts, personal investments and business needs have resulted in some paralysis. Emotional responses are distorting reality with a resultant loss of clarity. The normal objective approach, of rationalising the situation, taking the necessary first steps and determining the most appropriate future options, has effectively gone out the window. Complete standstill or possibly worse, knee-jerk reactions will not bring an appropriate or fitting solution. An integrated and well though out plan is required.

It’s all about what you do next with an emphasis on doing something – the plan for now! Now is the time for the investors and business owners to properly evaluate their position and to make whatever changes are necessary in order to ensure the continuation and viability of their trading companies. Now is the time for investors to enter into discussions with their bank to seek to reorganise repayment schedules on outstanding debt.

Now is the time for business owners to ascertain whether their current business model is out of date and to recognise that the fundamentals of business planning have shifted and they can no longer afford to make the ‘usual assumptions’ when devising their short and long-term plans. They must plan for two to three years of challenging times in the knowledge that 1) the rules for funding have changed 2) the business will only have a future if it is in a position to make sales and generate revenue 3) the business has the necessary strong management team required to make the correct decisions to lead the business through difficult times. Having recognised that the business has these key attributes it must:

• Prioritise the protection of its most profitable customers, activities, people and teams
• Be prepared to exploit real opportunity
• Focus on winning market share from its competitors
• Develop plans to ensure costs match with revenues and stay flexible in case revenues are not realised
• Study the market and company data closely before they act

However if the owners feel that the business cannot achieve the required revenues or it does not have the appropriate management expertise they should explore ways to retain the remaining value in the business by either entering into a merger or other arrangements such as joint ventures or seeking additional management expertise.

Now is the time to move beyond the fear generated by the economic downturn and to take decisive action in order to ensure that you and your business are ready for the upturn in activity. The music may not be as loud, the atmosphere not as raucous but with clarity of vision, focus and determination you will be there when the music starts again.

For more information please contact Brendan Waters.