Unfortunately, there is no panacea to ensure successful crisis management. How an unstable economic environment affects a company and what financial effects it triggers is very company-specific. Alongside key financial parameters – a company’s equity base, liquidity and cash flow – the critical factor in managing a crisis is the company’s business model with a clearly defined strategic direction.
The business model as the basis for value creation
For us, the business model is at the core of the financial focus – and financial management. It determines how a company functions, creates value for its customers, and generates financial value-added. The business model is shaped by numerous internal and external factors and is always subject to natural dynamics. This is particularly true in our current market environment, which is characterized by resource scarcity, supply chain disruptions, currency distortions, geopolitical disputes and the threat of recession. Against this background, it’s vital to review the business model continuously and derive any necessary measures in relation to the current market environment and its development. Suitable processes and management tools need to be in place to ensure timely identification of the relevant areas for action. However, there is no standardized procedure that can be generally applied. Each company, with its own specific business model, will encounter diverse issues and also weight the relevant topics differently. Particularly important issues include the following:
- Is liquidity ensured even if prices rise for raw materials and means of production (warehousing, payment terms, collaterals)?
- What risks arise from current and future market developments, e.g. with regard to counterparties, foreign currencies, interest rates or trade sanctions?
- Is viable financing aligned with the risk profile and secured for the short and long term?
- Are capital providers adequately informed about current developments and issues?
- Does current market turbulence offer opportunities for corporate acquisitions?
Financial management processes and tools
As our experience shows, well-managed companies regularly review their strategic alignment. Most companies consider the processes and instruments established within the company to be sufficient in terms of financial management. Swiss companies often have a high level of responsiveness to unexpected developments, as demonstrated, for example, in their reaction to challenges of the COVID pandemic. However, the challenge is not just about being able to take swift action in the short term, but also to monitor the potential longer-term consequences. The business model, future direction and measures introduced should be consistently aligned with one another. Fundamental questions for financial management include:
- Which planning and controlling instruments are in place? What time periods are these geared to, and how often are they reviewed and updated?
- How are the existing management tools used for decision making?
- Can they also be used to map risks and different future scenarios?
Risks from inconsistent strategy implementation
If the measures taken by a company are insufficiently or not aligned with the business model and financial value orientation, there is a risk of inefficiencies. Although there’s usually no immediate impact on current results, misalignment can erode earnings potential over time. It is generally assumed that there is a horizon of three to five years until strategic mistakes lead to an earnings crisis and subsequently a liquidity crisis, threatening the existence of the company. In uncertain market situations it sometimes proves problematic that companies attribute the eroding earnings potential to market distortions and expect the situation to normalize again of its own accord soon. Against this background, they fail to critically question the causes – or take corrective strategic measures. Valuable reaction time passes, and the closer the company edges to a potential liquidity crisis, the greater the risk that the required measures can no longer be initiated or that the necessary resources are already lacking.
Strategic financial dialog: a platform for inspiring exchange
Several companies have already benefited from our strategic financial dialog – our external perspective on strategic positioning and resulting financial issues. With many years of experience from various projects in the areas of corporate finance and financial management, we share our insights and serve as a sounding board for financial issues. We embrace open dialog to jointly identify fields of action that will strengthen your company sustainably.
Take a look at our impressive references or learn more in a non-binding discussion. We speak your language and, as your sounding board, provide you with an assessment of where you stand on key financial issues.
