FINANCE

Most financial analysts predict that a recession is imminent. At the moment the UK economy is on a downturn, as is that of the USA. It would be unrealistic to expect that Ireland will not experience some or all of the harsh effects of a recession in the medium to long term.

What do businesses need to do to survive or prosper in a recession? Outlined below are some of the steps that successful businesses in the Irish road transport industry implemented to successfully weather previous recessions.

n Cash Management n Customer Profile n Business Risk n Financial Strength n Employee Capability n Balance Sheet Strength n Accurate and Timely Financial

Information n Management Capability n Financial/Legal/Tax Support n Experience/Drive

CASH MANAgEMENT

Transport companies get into financial difficulties when cash runs out, although businesses can tread water for a time operating unprofitability if cash is not the issue. Companies must ensure that all debtors balances are controlled, and make sure that accurate and timely cash flow forecasts are done and reviewed regularly. Check at least on a monthly basis that cash balances are increasing or reducing and know the reason why. Do not over rely on bank support or assistance because banks will give you an umbrella when it is dry and ask for it back when it’s raining. Ultimately their self preservation is whats paramount to Financial Institutions.

CUSTOMER PROFIlE

It is obvious that some customer sectors are far less recession proof than others. While we hear about the tough work associated with the farming sector, it is one industry that retains volume even in the worst recession. Expect consumer spending to be impacted. In addition, if the business is densely populated with new firms serving the consumer, expect rough waters ahead.

BUSINESS RISK

Look at the make-up of the short and medium term debt, calculate the actual amount of own equity in the business and figure out the percentage of owned versus leased assets. Very quickly it will become apparent what businesses elements are maxing out on repayment capacity, and to what level businesses that are longer established can absorb a downturn in turnover and still survive. Get prepared by spreading out repayment requirements and even look now at medium to longer term finance options. It may cost more in interest payments but the alternative is inability to repayment debt that was taken out over a short period for assets that will have a longer usable life.

FINANCIAl STRENgTH

Many transport firms retain a sizeable cash reserve, even though they may have borrowings that could be cleared with these funds. The reasoning behind that strategy is that they can react to a potential purchase decision quickly (and then follow up with bank support) and the other reason they retain cash is to have an added buffer against a potential delay or issue with normal payments from customers. Having these funds just relieves further stress that a business owner can do without, it’s very difficult to run a transport business at its optimum if it becomes a fire fighting exercise regarding cash all the time. If the strategy has been to keep expanding the business in the good times when chasing turnover and margin, now is the time to review and make sure a reserve is in place.

Weathering the Storm

EMPlOYEE CAPABIlITY

If a recession hits there will be a reliance on staff to put the shoulder to the wheel, not only for the business survival but also to safeguard their livelihoods. Having staff that will work with management and allow flexibility and ingenuity in how the business will operate in difficult times is essential. They will be relied upon to eliminate waste and retain good customers, while assuring that the best interests of the business are represented. Currently there is substantial demand for transport services and sometimes business owners are having to let some matters slide re employee behaviour, but if chasing work in a shrinking market that’s when the calibre of employees is so important.

BAlANCE SHEET STRENgTH

The Balance Sheet of the business is supposed to be its value at a certain period of time, namely at the year end. In reality a balance sheet reflects a value that may be accurate, or vastly inflated or deflated. Are the value of trucks and trailers the actual value in the market? Are there other assets that are not even shown in the balance sheet? And sometimes are there amounts owing from debtors, or other assets shown in the balance sheet that will never be collected? Make sure the Balance Sheet is as clean and transparent as possible.

ACCURATE AND TIMElY FINANCIAl INFORMATION

The successful transport firms use financial information that is updated at least monthly if not weekly to accurately ascertain the state of their business. From tendering work to reviewing operational productivity, and double checking on-going rate increases and surcharges, all this financial work benefits the operation. Giving the best in class service can only really be enjoyed if the business is reaching best in class margins for work performed. Scrutiny of the bottom line in an industry that can go from profit to loss on a monthly is crucial.

MANAgEMENT CAPABIlITY

Sometimes a business will outgrow its management capability. This can happen when businesses expand quickly or even when current owners hand over to the next generation and they are still learning the ropes. Make sure the business is not overstretched when a recession is looming, make sure current management teams are supported and solid in their current roles and do not take for granted that the workhorse carries the heaviest loads. One of the main reasons businesses do not survive a recession is because a proper management team was never in place and all responsibility and problems rested on one head. This may be bearable when times are good but it quickly becomes an impossible burden when rough waters are hit.

FINANCIAl/lEgAl/TAx SUPPORT

In normal times most businesses will survive even if good financial, legal and tax advise is not sought or taken, but in a recession having this expertise, and using it appropriately and wisely, (bearing in mind the cost/ benefit derived from it) can be the decider on how to exit a recession. External experts can only advise, but having an independent voice that has expertise in the area of business profitability, legal issues and tax and wealth management can contribute positively to the final outcome.

ExPERIENCE AND DRIVE

A combination of experience and drive is required to navigate a clear and shrewd path through a recession. Commit to a course of action, keep updates on progress but still have the energy to see it through. Without this some businesses are better off cashing in prior to a recession, extracting the financial value from the business and riding out this storm.

Many analogies for business are taken from sport and it is no surprise that talented leaders on the sports fields end up running corporate giants. In sailing one cannot control the wind but can adjust the sails. For instance, when racing around the Fastnet and a storm develops , there are two choices, push on and risk all to win or make for the safety of Crookhaven bay and calm waters in Snug Harbour. The professionals succeed because they are well prepared, have all relevant information to hand, and lead from the front. In addition, they have the trust and confidence of their team and also have back-up plans B, C and D ready when needed. The business needs to be fit and ready for the challenges that lie ahead and owners more than ever need to face the tough times that potentially lie ahead.

Text: Donal Dempsey – donal@fleet.ie

Transport Manager Ireland 2022

Programme includes: • Keynote Speaker

Hildegarde Naughton TD

Minister of State at the Department of Transport • Road Safety Strategy and implications for commercial transport

Sam Wade

CEO Road Safety Authority • National Fleet Database (NFD)

Tom O’Brien

Technical Claims Manager MIBI

Pricing: €225 for member, €275 for non-member

Wednesday 19 October

The Johnstown Estate, Enfield, Co. Meath