After a sustained period of low inflation and cheap debt, the world has changed and we are now re-entering a period of high inflation and higher interest rates which poses significant challenges for many businesses.

Not only does this represent a significant change to the climate of the last decade, it’s uncertain how long these economic headwinds will last.

Against this backdrop, here are five practical considerations for management teams:

• Before cash becomes constrained, management should ensure there is a robust 13-week short term cash flow forecasting process which will complement the regular P&L / KPI flash reporting.
• Liquidity reporting should give stakeholders a clear line of sight, flagging periods where cash is constrained and setting out proposed mitigating actions or highlighting potential funding shortfalls.
• Given the rapidly changing environment, management should also look to prepare regular trading reforecasts to ensure any short to medium term issues or pressures are identified and addressed early.

• Seek to build cash buffers early that support the company through future periods of tight liquidity.
• Identify, prioritise and develop an action plan for risks and opportunities associated with the cost base.
• Seek specialist advice on how to proactively manage working capital to minimise inflationary and sourcing pressures.

• Better the devil you know, than the devil you don't?
• Don’t seek to beat the market, get expert advice on hedging floating interest rate and FX exposure to allow management’s focus to be on day-to-day business operations.

• We often see management teams responding to challenging situations by becoming more insular and closed, thinking they need to bring solutions to stakeholders before disclosing the issues.
• We would always recommend the complete opposite. Providing prompt and regular guidance on upcoming risks and issues (e.g. trading and liquidity updates, maturity walls, covenant risks, etc), even if only early stage indicators of concern, demonstrates strong management oversight and instils confidence that action is being taken – bad news delivered at the last minute is never welcome!

• When a company is showing signs of stress or distress, the number of stakeholders and their demands rapidly increases, pulling management's attention increasingly away from the day job.
• Get on the front foot by engaging the right legal and financial advisers early. This allows the company to control the narrative and lead the situation.

Across our CRO and Value Delivery service lines we provide support and deep situational experience to address the challenges facing stressed and distressed businesses.

Our approach is to provide small, hands-on teams with relevant experience to work alongside companies and their boards, providing management with the necessary bandwidth to focus on the day to day running of the company.

THM has supported numerous companies showing signs of stress and distress over the years and was named the IFT Turnaround Adviser of the Year in 2021.

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