the need to find the right course
Still far from 2019’s level, when about 53,000 failures occurred, the situation is worsening. To avoid the big wave in the coming months and years, companies need to get the situation right and start making the necessary changes now, while also questioning their strategy and their cash flow.
Avoid the cash illusion
To some extent, inflation benefits the few companies that sell their inventory at higher than expected prices, which is bound to improve their short-term profitability. In addition, they have more cash on hand, especially if they benefited from public assistance in response to the health crisis, such as PGEs or tax credits.
However, make no mistake about it. The latter suffer – directly or indirectly – from the phenomenon of inflation in their cost base and future purchases. Structurally, funding costs are expected to increase due to interest rate hikes by the ECB, as well as the impact of the dollar exchange rate, and production and operating costs are likely to continue to rise amid inflation affecting raw materials and energy. This trend is so important that it risks at least accelerate the deindustrialization of our economy and put more pressure on our agri-food sector. Where there is a crisis subprime suddenly appeared, we are insidiously entering a permanent crisis.
Integrate the unexpected into the decision-making process
In this context, many companies considered it appropriate to postpone significant changes in their operations because the market will gain stability in the coming months. For a long time, we have thrived in a more predictable world because it is more stable. These past three years have demonstrated that change has become the norm and now they must incorporate the unexpected as a constant factor, hence the need for a paradigm shift. The situation will not necessarily be visible in the coming months, and it is the entire decision-making process with reduced visibility that needs to be reconsidered now.
Now reconsider the business model
If talking about uncertainty may seem excessive when it comes to business failures, the image of flood seems more appropriate.
To stem the tide, companies need to start thinking deeply about their business model today. This core thought management issue should cover topics as diverse as the partnerships companies build, their financing structures, and even ways to understand sustainability and ESG in their operations. In general, you must have the courage to implement strategic support when necessary and to face difficult decisions in terms of capital and cost structure with clarity.
Many companies wait until economic difficulties arise to look at their cash flow forecasts. Without a cash culture, these companies focus on their margins. However, they should remember that only cash can offer them the flexibility they need to project themselves in different scenarios. Because flexibility in the face of crises should remain the key word. As such, optimism must seriously remain.
Thus, at least 71% of international leaders said they were confident or very confident about the future of global growth. There are many examples in this direction, especially AccorInvest, which successfully faced a difficult situation by devoting its energy to securing financing and implementing an effective restructuring. The latter was accompanied by a comprehensive review of all processes and tools, which led to a strategic refocusing of activities on operational excellence and asset management, the company’s two core businesses, as well as a continuous increase in its growth. , which is now persistent.
If the comparison is not fair, it might be interesting to see what happens to our neighbors. Without self-criticism, of course: in this case, it seems that the neighboring countries are not in a more favorable situation than ours, and they also have to come to terms with a difficult economic context and constant uncertainty. That is why, when the storms come, our economies will have to face so many challenges, based on the synergy that is the strength of the eurozone.