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The economic indicators are mostly good. Scottish corporate insolvencies continue to drop: thanks at least in part to a recent period of low interest and low inflation. UK CFOs remain relatively optimistic – although our latest survey found that uncertainty is on the rise with weakness in emerging and global equity markets.

Many businesses will have confidence; but, they need to remain wary. To paraphrase a well-used extract from Sun Tzu’s Art of War: in times of plenty, prepare for scarcity. In times of scarcity, prepare for plenty.

While it’s been a relatively benign environment for some, others have faced big challenges. The oil and gas sector, for example, has been contending with sustained low oil prices, which looks set to continue for the foreseeable future and has already taken its toll on some operators.

It’s black swans like this which could descend on any industry – few people foresaw the 60% fall in the price of oil between June 2014 and January 2015. Seemingly healthy companies can be toppled by unforeseen and sudden changes in market dynamics.

Over the coming months, we’re going to examine a variety of temperature checks which could indicate your business might need some attention. Here’s just a few of them:

Working capital management

Do you have sufficient cash flow to meet your short-term debt obligations and operating expenses? No matter how well your business is doing on paper, if you haven’t got this right it could be your downfall. Make sure you have access to enough cash and liquid assets to see you through the next few months.

Supply chain risk

Modern supply chains are incredibly complex and, even for many small businesses, can span the entire globe. If one of your suppliers on the other side of the world fails, what protection do you have in place? Have you considered contingencies? Understanding and mapping out your supply chain, irrespective of your company’s activity, should be an absolute priority.

Tax

Tax systems, even within the UK, are beginning to diverge and increase in their intricacies. The introduction of a Scottish Rate of Income Tax and the Land and Buildings Transaction Tax are just two examples in the UK, but for those with operations abroad it’s even more complicated. Employee tax regimes can have as many iterations as there are countries in the world. And R&D tax credits provide a source of relief for which many firms don’t realise they are eligible. 

Management information systems

Technology has transformed how we do business and much has already been made about the implications of Big Data; but are companies using what they have to maximum effect? Many are sitting on an abundance of data which, if they used it to its full potential, could revolutionise their operations and intelligence. Check you have the IT infrastructure in place to make the most of it.

Financing structures

Financing is a perennial issue for many firms. Even before the oil price slump, it was a challenge for many North Sea operators, after several years without any big discoveries. In the wider economy, interest rates remain low but there has been talk for some time about a potential rise. That could have implications for companies looking to take on new debt or refinance. Making sure debt structures fit with your asset portfolio is another key consideration for many businesses. 

What’s important through all of this is to assess your position. For example, do you have sufficient headroom within your banking facilities or envisage challenges in the future? Do you foresee any issues complying with banking covenants or feel your arrangements from a few years ago are no longer appropriate?

If there are difficult conversations to be had, have them early. From there, ensure you’re taking the right steps to remedy any potential threats to your company and its assets.

These are just some of the myriad and interconnected indicators of business stress. We’ll be looking at each of them in turn, along with a few others, over the next few months – watch this space for more.

You may also be interested in:

Oil and Gas Reality Check 2015
Get ready for SRIT part I: what does it all mean?
Get ready for SRIT part II: four steps you can take ahead of April 2016

 

John reid

John Reid - Partner, Deloitte 

John heads the Restructuring Services practice in Scotland and Northern Ireland, specialising in advising the stakeholders of underperforming and stressed businesses. John’s industry experience includes engineering, manufacturing, oil and gas, construction, hotel and leisure and the power sector.

 
Graeme sheils

Graeme Sheils - Partner, Deloitte

Graeme is a Senior Audit & Advisory partner based in our Aberdeen office. Graeme leads our Corporate Audit practice in Scotland and Northern Ireland . He has been a partner since 1997 and has 30 years’ experience in audit and corporate finance. He is a member of our UK Energy & Resources team and works predominately in the oilfield services sector serving growing private equity backed businesses from initial investment to exit.

Kris keane

Kris Keane - Assistant Director, Deloitte

Kris joined Deloitte in 2001 as an Associate. He quickly moved on to become a Manager, and then Assistant Director in 2007 within the reorganisation services team, based in Scotland.  Kris is an experienced member of the team specialising in restructuring, due diligence and corporate finance.

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