Contingency Planning for a Downturn in the Economy
As a matter of good financial management, the ACT has provided advice to its members on contingency planning for a downturn in the economy.
Investment grade companies generally entered the current stage of the economic cycle with balance sheets in relatively good shape and having stocked up on un-drawn multi-year lines of credit during the years of easier availability. But even if a company is in good shape, it will still want to consider how its customers, suppliers, competitors and potential acquisition targets may be affected by a downturn and how they may respond.
The ACT’s Briefing Note looks not just at the financial fundamentals, including cash and balance sheet management, risk and funding availability, but also at how the business strategy and plans may need adapting to new circumstances - both defensively and also to take advantage of opportunities. Treasury plays a key role in this interaction between the business strategy of a firm and its financial strategy and policy.
Richard Raeburn, Chief Executive of the ACT said:
Few in business have sufficient senior-level experience of previous downturns. Companies need to re-examine business plans at the strategic and operational levels and need to ensure they can survive any difficulties and are ready to exploit any opportunities. Setting out good practice at any stage of the economic cycle, this guidance note is essential reading for all those involved in managing a company, whether or not directly charged with financial management. Richard Raeburn, Chief Executive of the ACT
Contingency planning for a downturn in the economy: a treasurer’s checklist, is available from the ACT website at:
NOTES TO EDITORS
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Points covered in the Briefing Note include advice to:
- Review business plans with a newly critical eye
- Consider on the one hand scaling back investments; or on the other hand, taking advantage of circumstances to invest ahead of any upturn
- Be ready to make acquisitions opportunistically or defensively, e.g to stop a firm falling into the hands of a competitor
And in terms of financing:
- Know who the lenders to the company are, given that loans can be traded around the market
- Make sure there are no technicalities that could give your lenders legally valid reasons not to lend to you
- Keep up good communications with your lenders
- Review credit terms with your customers and from your suppliers
- Remember that a crucial supplier could cause disruption if it failed or was acquired by a competitor