Expert Roundtable - Main challenges

What are the challenges out there and how can our service lines help you? We gathered the thoughts of a number of Deloitte partners on what the main challenges are and, more importantly, what companies can do to begin tackling these problems. (Click a question below to reveal our expert's answers).

Expert Profiles:

Outlining their thoughts are -

Cormac Hughes , Partner, Consulting
Ger O'Mahoney, Partner, Corporate Finance
Padráig Cronin, Partner, Tax & Legal Services
Kevin Sheehan, Partner, SME Services
David Carson, Partner, Reorganisation Services

1. The business environment is difficult with uncertainty being an overriding feature facing many businesses. You all deal with different clients either in terms of size, industry and location. Can you give us a sense of the key issues that your clients are seeing?

Cormac Hughes: A key issue we are observing is the impact that uncertainty in revenue forecasts and the inability to estimate a "floor" is having on planning the business. Most of my clients are involved in increasingly frequent re-forecasting and planning which is distracting them from their customers, and taking the business decisions required to address the downturn. Getting a plan you can have confidence in is the biggest problem.

Ger O'Mahoney: The most critical areas at present are inherent profitability and access to suitable funding. All businesses need to embrace change to adapt to the current turbulent world. For some this requires significant cost reduction/right sizing. For others it requires them to increase market share to ensure that they are part of "the strong get stronger grouping". Others have to fundamentally address their strategy in a changed market.

Padráig Cronin: I agree, access to funding in addition to concern about the renewal of existing facilities are the key issues across all sectors.

Kevin Sheehan: Managing cashflow has become very challenging in recent months. SMEs in particular are encountering problems in managing outflows through extended credit arrangements, both from suppliers and banks. Where suppliers were once flexible on payment terms, they are now seeking "on-time" or even cash on delivery payments. On the customer side average debtor collection days have deteriorated significantly. All of this results in a higher working capital requirement.

David Carson: Absolutely, business confidence has suffered due to a lack of liquidity which, in turn, has led to a lack of activity in the market. The net effect is that businesses across all sectors are struggling with cashflow at a time when the banks are most unsympathetic to their needs.

2. How can your team add real tangible value to businesses facing today's challenging market conditions? How quickly can this value be realised and what is required?

Kevin Sheehan: The best way to manage working capital is to predict where the peak cash requirements lie and approach funders in advance of the problem arising. We can assist companies in preparing profitability and cashflow projections to present to banks and key creditors. Working with your finance team, we can produce reports suitable for presentation purposes in as short as a 1 week timeframe.

Cormac Hughes: As Kevin mentioned, in the short term, working with clients to deliver immediate improvements in their working capital has been a tangible benefit. We support the internal team in improving collections, identifying opportunities on payment terms and reducing inventory. Longer term we are starting to work with firms that want to move to a lower cost operating model - through re-structuring and focussing on the core business.

Ger O'Mahoney: We can review their existing funding plan and stress test it in scenarios which will identify the key drivers that need to be managed. This in turn will allow redefinition of funding sources and prompt interaction with stakeholders at an early stage. This will create additional funding which will protect the business and potentially allow a war chest for opportunistic investments. It can be realised in the short term and a defined business plan is required.

David Carson: We work with both companies and banks. Working with the latter gives us a good understanding of the way that banks will look at issues. We can bring this experience to any business that is facing cashflow difficulties. The timeframe depends on the individual circumstances but we can usually diagnose problems within a matter of days. The solutions will depend on a variety of factors.

Padráig Cronin: Tax, including payroll withholding, is typically one of the largest cash outflows on a monthly basis. We are working closely with our clients to reduce and/defer the "cash burn” by introducing new employee compensation structures and maximising all available reliefs.

3. If you could offer businesses one piece of advice what would it be?

Ger O'Mahoney: Ensure that the key drivers of your business are identified, controlled and converted to variable drivers in so far as possible.

Kevin Sheehan: If you have a trading or cashflow problem engage with your stakeholders to find solutions, in a managed way, as early as possible - this will give you the best chance of surviving the problem.

David Carson: Take responsibility for solving the issues. The reasons why the issues are there are somewhat irrelevant. Appropriate and timely action is key to a successful outcome.

Padráig Cronin: Take the hard decisions in 2008 - if you do not you may not be in business in 2010.

Cormac Hughes: Be optimistic about the future, but accept that the business environment has changed utterly in the last six months, and you have to fundamentally change the way you approach your business if you want to emerge a winner from all of this.

4. What can your service line provide that businesses cannot do themselves?

Cormac Hughes: You and your team will ultimately have to lead your firm through this evolution, but it is likely that you have not had to lead such a level of change previously. We have seen this situation many times. We can bring the experience and capacity required to work with your management team to identify and make the changes required.

Ger O'Mahoney: Similarly, an independent review of the key drivers of the business, which impact cashflow and profitability. We can also help support you with your negotiations with funding stakeholders.

Kevin Sheehan: Yes, in relation to that our SME services team can assist you in preparing financial analysis and information in a way that adds credibility to your business.

Padráig Cronin: Tax is a specialist area and we can add real value through working closely with a business and realise previously hidden value.

David Carson: We have huge experience in restructuring businesses and have seen it from “both sides of the table”. We work closely with our clients to understand their needs and present practical, achievable results. Implementation is key.

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