Recovery to accelerate, Capital allocation

Simon Bittlestone, CEO of the Metapraxis shared his thoughts are ticks regarding the successful management of his firm and the ways to tackle the crisis. “The uncertainty thrown up by the COVID-19 pandemic has meant that many businesses have been feeling the strain and extra pressure on their cash flow. While measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) were put in place, for some businesses, these have been ineffective in providing much needed liquidity. This has affected smaller businesses significantly, as they are much more likely to default on loans than their larger counterparts, and therefore less likely to have a loan approved.” He said that the month of April’s survey showed a pessimistic look for the SMEs, which predicted a run out of cash in the coming weeks and taking that into account, there were few other factors to be monitored. The outlook of the business might have changed continuously but it would be naïve to think that they were out of the wood, were his thoughts regarding the next few months’ hold.

The factors influencing business which needs to consider in order to effectively optimize the strategy were, as shared by Mr.Simon, “Financial results depend on how businesses split their capital across different strategies, projects, products or services, as well as various regions. Clearly it would be beneficial to back the most profitable service lines in a time of financial uncertainty, but in order to get this right, businesses need to consider three main points: multiplicity of inputs, complexity of comparison and multiplicity of output.” Multiplicity of inputs is proportional to the assets that can be supported. More the assets more complex is the challenge of coordinating the capital allocation. “To add to this already difficult process, multiplicity of output is going to change dramatically over the coming years, as companies begin to consider other factors such as climate impact, employee wellness and social responsibility as outputs.” He believes that this is the complexity of comparison and which is hard for the board to choose which assets to support.

“Businesses must focus their efforts on financial return. Doing so is a key part of any businesses’ recovery from financial hardship, even if they are caused by unpredictable ‘black swan events’ such as coronavirus.” As many things remained fixed in the short term model, there will be no such thing as creating a whole new product line in the times of recovery and only few businesses have been able to achieve it.  The ability to reach long-term goals very much depends on identifying future risks and changes in the market, and being able to react quickly.

To conclude with the key takeaway for business who are looking to learn from this Covid pandemic, he said, “Capital allocation has always and will always be at the heart of any business’s operations. This is even more prevalent in times of economic recession when managing cashflow becomes even more vital for survival. When a business has a clear historical overview of its portfolio, how well products or services are performing, and how previous scenarios have affected profitability, it can make more informed decisions when it comes to assessing the impact of an unexpected event. The ability to adapt to fluctuations is hugely important to the board, particularly the CFO, when it comes to successful cashflow management. Agility in financial planning, good scenario modelling and prudent assumptions will allow a business to better weather most storms.”