Businesses can still succeed in this changing landscape, but companies must decide whether to take an aggressive or conservative stance with capital.
In the current climate, business leaders may be feeling they’ve never faced tougher decisions as the coronavirus pandemic continues to wreak havoc on capital investment plans. But despite the uncertain environment, executives will need to decide soon, if they haven’t already, whether to source funding for business growth in 2021 or take a more conservative approach with their capital.
“Businesses that thrived during the extreme acid test of the first lockdown have reason to be ambitious in their outlook and with
their investment over the winter”.
“This is a very uncertain time for businesses and it’s hard to predict the way the economy will fare, particularly as this recession isn’t necessarily following normal trends,” says Michelle Ovens, chair of the Small Business Charter. However, there are still opportunities for growth potential, she says. “Businesses that thrived during the extreme acid test of the first lockdown have reason to be ambitious in their outlook and with their investment over the winter,” says Ovens.
But others, including Andrew Oury, partner at accountancy and legal firm Oury Clark, believe now is not the time for businesses to invest aggressively in expanding their business, by growing employee numbers or through bolt-on acquisitions, for example. He says many businesses seem to be underestimating the length and financial depth of the current crisis.
“It’s entirely dependent on an organisation’s sector and market positioning but, in general, I would say companies need to be hanging onto their capital as best they can, given this situation is far from over,” he says.
There are certainly some sectors that have fared better than others throughout the challenges posed by the pandemic and which might be more inclined to seek funding for business growth or expand geographic reach. Technology is one sector that has seemingly flourished during the pandemic, while the travel and tourism industry has suffered from bans on international travel.
“If your business specialises in retail, has negligible cash reserves and diminishing revenue, now is probably not the time to be aggressive,” says Andy Cristin, consultant financial director at Pareto FD. “However, businesses in relatively stable sectors with access to cash should be looking to expand as they come out of the survival phase of this crisis.”
UK manufacturer Alloy Wire International (AWI) has invested more than £1.2 million in the past six months in a combination of material, new machines and in the development of its offices in the West Midlands, representing almost 10 per cent of its annual turnover, says managing director Mark Venables.
AWI supplies more than 5,000 clients in 55 countries and is growing its client base despite the pandemic, which means it needs to maintain stock levels. “The business prides itself on being employee owned, so the major financial decisions we make have to be agreed by the staff who work here and would only be taken if it means putting the company in a stronger position to meet existing customer demand and to target new growth opportunities,” says Venables.
Aaron Auld, chief executive of Exasol, says the analytics database company is planning to continue being aggressive in its approach over the next year and has already sourced funding for business growth. It became only the second company to complete a virtual initial public offering in Europe in 2020, raising €87.5 million and was Germany’s first listing this year when it made its stock market debut in May.
“We are a global player, and our growth plans reflect that. And the challenges that organisations are facing in the current climate present a great opportunity for us to be aggressive in how we do it,” says Auld.
Another UK-based company that has chosen to be aggressive with its capital in the face of the pandemic is engineering solutions provider Deritend. Its long-term strategy is to create “centres of operational excellence” in each of its key geographic areas, according to chief executive Richard Hale.
He says the sector is often the first to go into recession and then the first to show signs of recovery, a pattern that has held true in the past few months. “COVID-19 did make us consider whether to press on with the investment, but the overwhelming decision was to take the down-time and use it to our advantage, going through the reorganisation process while customer interest was reduced,” says Hale.
Some companies, smaller businesses in particular, simply are not seeking funding for business growth in 2021 because they think the investment is not available.
“There is a perception among startups that all venture capitalists, corporates and so on aren’t investing, so startups are either shutting down or selling their businesses; this is not sustainable,” says Rakesh Narayana, global director of RB Ventures, Reckitt Benckiser’s new corporate venture capital arm.
“The investment and ventures arm of RB has been evolving over recent years, but most recently we launched the RB Fight for Access Fund. We are putting a much greater importance on making selective investments in startups and businesses with the ability to have a world-changing impact,” he says, adding that the economic backdrop is the reason why the company is forging ahead with its ventures arm.
“The crisis has presented investment opportunities for many businesses, particularly in the food and tech sectors, and for some businesses, now is the perfect time to consider seeking investment in the form of mergers and acquisitions and private equity,” according to Debbie Jackson, partner in the corporate team at law firm Walker Morris.
Jackson says many businesses will now have a greater understanding of how they can run most cost effectively, which puts them in a good position to secure funding for business growth from a private equity firm, for example. In other words, now is the time to take stock.
Gary Griffiths, co-founder and managing director of Wisdom, a venture capital firm, says one of its portfolio companies, graphic design software provider Canvas GFX, has demonstrated it can be both aggressive and conservative with capital. “In our portfolio, most companies have done the same: conservative with spending, while being aggressive in defining new markets and new opportunities,” he says.
Excerpt from Raconteur Business Growth & Recovery special report published in The TIMES.