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Invest in the future – with or without a strong balance sheet

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Brexit and the US presidential election have created a cautious market in which many companies are minded to sit on their cash and do nothing. But experienced commercial director David Scott argues that conditions are ripe for companies to make measured investments and steal the advantage – even if their balance sheets aren’t looking so healthy.

“After the financial crash of 2008, companies with cash became increasingly nervous about what to do with it; and today the market is possibly even worse – there’s a sense we’re in limbo,” explains David. “In mature industries in particular, companies seem to be struggling to recognise where to invest next.”

David says his basic approach to growth is looking at what opportunities the market presents. Several years ago he worked for a large facilities management company that spotted a gap in the market to take on their client’s obligations for carbon reduction and environmental regulation. The service was attractive to clients and investors, and generated double-digit margins for David’s company.

If you can show that the deal stands up, it can give you large amounts of capital that you otherwise wouldn’t have been able to access

“My starting point for any investment is that, generally, it should pay back within three years and become a self-funding proposition with little or no risk,” he says. “One of the big pitfalls that I’ve seen a lot of companies fall into is that they’ll develop new solutions, but often don’t consider the strategy, implementation or management.”

Research the market

“To make a business investment you need the right level of expertise. You need to engage with a number of specialist consultants to get a blended view of the market to come up with opportunities that are right for you.

“Particularly when there’s a large investment required, doing your research up front is vital. For example, at one of my previous companies we had knowledge partnerships with a university to help us understand the direction of the sector.”

But even if a company wants to make an investment in a new product or service or get ahead of indecisive competition, it may feel hampered by limited funding options or a weak balance sheet. David says that doesn’t mean you have to sit back and do nothing.

Off-balance sheet options

“If you’ve already leveraged your balance sheet and are still creditworthy, there are off-sheet or operating lease options for renting assets that are available. The typical solutions I’ve looked at come from major European clearing banks. If you can show that the deal stands up, it can give you large amounts of capital that you otherwise wouldn’t have been able to access.

“The only catch is that you never own the assets. But providing the investment is successful beyond payback, you can refresh your assets every few years. Remember, when acquiring or investing in assets, these deals often fall down because companies only consider the assets themselves and don’t take into account the installation and management of such assets in the long term.

“Another option is for companies to partner with others to offer their products and services in a ‘white label’ way and leveraging their expertise cost-effectively. For example, when launching the energy project at our facilities management company we partnered with Siemens to provide technology and Centrica to provide the control elements for our solution.”

Learn from the past

Finally, David says, don’t completely discount past investment ideas or failures. “Typically, when I work with a company I’ll explore what’s been done before; it may have simply been the right idea with the wrong approach.”

Whatever your position, David says that standing still should never be an option – a stagnating market presents an opportunity, not a threat, if approached in the right way.

 

Summary

  • Companies with strong balance sheets shouldn’t sit on their cash.
  • A wider range of innovative funding options are becoming more available to those with weaker balance sheets.
  • Asset leasing is one good way to fund innovation.
  • Standing still is not an option – to the right leader a stagnant market can present an opportunity, not a threat.

 

David Scott
David Scott has been an interim executive for the past 20 years and specialises in finance, strategic product launches and high-level commercial deals. He has a proven track record in many sectors including defence, facilities management, IT, retail, healthcare, telecoms and construction.

Williams Bain
Williams Bain supplies organisations with experts that deliver major change. We are a proven alternative option to the large management consultancies when it comes to physically delivering board sponsored initiatives and one-off events.