Cash helps you afford an opportunity
September 2009
Harry Parkinson, managing director of Close Invoice Finance
in Northern Ireland casts an eye over the challenges currently facing local
companies and sees opportunities in merger and acquisition
FIT has almost become a cliché to say that cash is king in a recession but it
is nevertheless a truism that gains importance daily for companies of all sizes.
Anyone reading the newspapers over the last month could not have missed the
reams of editorial coverage given to the year since the US government allowed
Lehman Brothers to collapse.
In doing so a catastrophic series of economic events were triggered that were
felt as much in Newtownards as in New York.
Those who argue that we are witnessing green shoots of recovery appear to be
more of the wishful thinking genre than those with hard economic data in their
back pockets to support such optimism.
While it’s encouraging to come across such an enthusiastic view of current
economic events the reality on the ground is as harsh as ever with companies
continuing to lay people off, struggling to get people to pay invoices on time
and facing tough decisions about the length of the working week.
So when a businessman or woman tells you that cash is king, he or she really
means it.
Of course in a recession there are always opportunities for those with a
propensity to risk and a decent cash flow to match.
There are many business people out there with an eye for a good deal who are
clearly in acquisition mode.
While getting an appropriate loan at a competitive rate from one’s bank may
prove difficult, smoothing a company’s cash flow in preparation for merger or
acquisition is a smart move. Banks like a well-reasoned cash flow projection
when making lending decisions.
Invoice financing comes into its own in such a situation and achieves two
things. Firstly it gives the company the confidence to pursue their corporate
goals and secondly it gives a bank an assurance that sufficient funds are
available to meet debt repayments.
Of course cash flow isn’t the only criterion in a lending decision but it
goes a long way to ensuring that a bank is comfortable with the principle of the
loan.
In many ways it has been surprising that we have not seen more merger and
acquisition activity, as opportunities undoubtedly exist for businesses in all
sectors to exploit the present conditions.
It’s healthy for the economy too that such activity takes place as it
encourages and improves the flow of money, helps prime the employment market and
creates conditions which facilitate a faster easing of recessional pressures.
So the starting point is a consistent cash flow position which invoice
financing can easily facilitate given that it’s based on the size of one’s
debtor book. Companies experiencing on-going sales success in the recession are
then in an excellent position to avoid the problem of late settlement of
invoices and can plan strategically for the future including taking advantage of
merger and acquisition opportunities.
There has been some serious activity in global markets in recent weeks with
Kraft Food making a bid for Cadbury; Disney purchasing Marvel Entertainment and
taking on the Hulk and Spiderman et al and in the UK T-Mobile and Orange are
merging. Closer to home Belfast-based SLA Networks have purchased IT company,
Ethos.
Finance pundits predict more activity to follow both at global and national
level.
Perhaps Northern Ireland will get in on the act too!
