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Build resilience: Tips for CFOs planning to future-proof a private business

Tsae Liew, PwC Private Tax Partner 

 


The exact origin of the phrase “May you live in interesting times” is not known but one thing is for sure: Australia’s finance leaders are steering private businesses through interesting times right now.

To name just a few of the headwinds in the global economy: Supply chain pressure. Labour market shortages. Weather-related disruptions. Rising energy costs. Geopolitical tensions. Cybersecurity threats. The push towards decarbonisation

But while CFOs could be forgiven for feeling daunted by these headwinds, Australian private businesses are uniquely placed to come through all this in a remarkably healthy position. That message came through loud and clear when finance leaders discussed the economic outlook at our recent Private Business CFO Connect webinar. In fact, reading between the lines, there are ample reasons for optimism in the months ahead. 

Glass half empty or half full?

Despite consecutive interest rate rises and the increased cost of capital, Australia is currently enjoying a period of relative liquidity in the market – due in no small part to Australia’s strong economic response to COVID-19. With GDP growth remaining positive throughout the pandemic, healthy fiscal resilience and improved income equity, the prospects for Australia’s private businesses are more rosy than they might first appear.  

This is not to say it will be all smooth sailing. The question CFOs and finance leaders need to answer now is, what can be done to ensure your business will succeed, and even thrive, in this increasingly volatile market? 

Power of planning: The key to organisational resilience 

Not just a buzz word, resilience (or lack of it) can make or break a business; particularly in these “interesting times” of uncertainty. As our expert panel shared during the webinar, there are practical measures finance leaders can take now to ensure a private business is agile enough to weather the ups and downs – and be prepared enough to capitalise on the opportunities that may arise just as unexpectedly.

Consider worst-case scenarios 

It can be uncomfortable for any private business to explore worst-case scenarios. However, carrying out a full, hypothetical analysis of potential crises such as a cybersecurity attack, weather-related disruptions, or unexpected income losses before they arise offers CFOs and finance leaders the opportunity to future-proof operations as much as possible. 

Consider, for example, the following. Would your organisation pay ransom in the event of a cyber attack? What processes are in place in the event of flood-related transport disruptions? How would your business respond if sales dropped by 10% and what measures could you take to ensure your business still thrives? What if sales dropped by 20%? Or 30%? 

These are complex questions, and paper is cheap, as the saying goes. Taking the time to explore operational risks and the full range of responses for theoretical (albeit possible) crises not only highlights weaknesses, but also identifies solutions ahead of time. Pre-planning provides a clear, well-considered course of action in the event of such a crisis unfolding, allowing finance leaders the ability to approach future challenges with confidence, clarity, and rational decision-making paths when most needed.  

Focus on financier relationships

While there is a large amount of liquidity in the market right now, we can expect to see a much more judicious allocation of capital across companies and sectors as banks work to ensure their credit risk is managed. By asking more ‘what ifs…?’ CFOs can not only build more organisational resilience but simultaneously strengthen the relationship with their financiers. 

First though, private businesses must be willing to stress-test their financial forecast. Consider possibilities such as your bank wanting to shift towards a mix of fixed versus floating interest rates, stricter covenants, or increased margins for credit risk. How will your organisation respond? Asking these questions demonstrates a willingness to be proactive and minimises the risk attached to your private business from funding risk – both valuable traits at a time when financiers are having to assess the risk and return of every customer ever more carefully.

In addition to planning, work to establish and maintain positive, open channels of communication with your bank. This is not so much an obligation as it is smart business practice. Inviting financiers to understand, in detail, your current performance, business strategies and challenges helps to create a mutually beneficial commercial relationship predicated on trust. While nothing can completely negate uncertainty present in the current lending landscape; trust, openness, and willingness to work in partnership will hold businesses in very good stead with their bank, and the wider business landscape. 

Step boldly into the future

In short, whilst these may be interesting times, there are many reasons for optimism in the months ahead. With some bold forward-thinking, finance leaders can put private businesses in a strong position to meet the challenges and opportunities head-on. 

We're here to help

Check out the Private Business CFO Connect page for latest relevant articles and insights. 

Read how Private businesses can create and retain value now, an article by Australian Private Leader, Martina Crowley

For a more detailed discussion, please get in touch with your PwC advisor or contact:

Tim Hall

PwC | Private | Partner - Tax, Melbourne, PwC Australia

+61 416 132 213

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Tsae Liew

Partner, Sydney, PwC Australia

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