Covid-19 has given the opportunity to people as well as companies to reassess what they have been doing right, not so right and how they can evolve /grow to the next level when we all come back with more vigor, more enthusiasm and ready for the next level of sustainable growth!
At the heart of all decisions, finance remains one of the most important one be it for individuals or for companies. Given the time on hand, it is a golden opportunity for companies to look at some of the important aspects of financial re-engineering which may would have been ignored in BAU scenario. I have listed down the few aspects / questions which each and every company irrespective of their size should ask:
Capital Structure: Questions to be asked to reassess existing capital structure are:
- Do we have optimum debt:equity mix to gain the tax efficiency?
- Is our cost of capital in line with other similar players in the industry?
- Is our limited capital blocked in non core business?
- Can we change the profile of the debt to reduce cost of capital?
Broaden the Source of Financing: Things to look at in this area are:
- How do we ensure liquidity in the time of crisis which means multiple source of funding?
- Think beyond Banking and tap into new age NBFCs and start-up eco system?
- Go for rating to improve banking liquidity and explore debt capital market options!
Efficient Working Capital / Faster Cash Conversion Cycle:
- Is there an opportunity to discount long term as well as short term receivables on a non-recourse or partial recourse basis?
- Is there an opportunity to avail pre/post shipment supplier finance?
- Can we increase the top-line by offering required financing to our customers / dealers / distributors?
FX / Interest Rate Risk Management:
- In ever changing world economy, are we ready to manage market risk arising from Foreign exchange and Interest rate risk?
- Do we have an opportunity to re-profile our existing debt based on firm’s FX receivables or payable positions so as to tap international liquidity and reduce the interest cost?
Government Policies / Decipher Regulations:
- In this VUCA world, Govt. will be compelled to change their policies / regulations to save domestic economy / help domestic firm go overseas – are we up to date to take advantage of various policies measures undertaken by Govt from time to time?
- Do we have enough market research / data to take informed decision to go to overseas markets or launch a new product or change marketing strategy?
There is going to lot of opportunities for mid-size and SMEs to form JV / tie up with Multi-national Companies (MNCs) which will relocate from China. Hence it is paramount for business to be ready and agile in its financial management to get the best valuation as well as attention from MNCs which would need some kind of local knowledge / expertise / know-how on how to do business in a complex markets like India.
We at Zeolyt Advisory offer above solutions and help the company tide over the current crisis and come out stronger, cleaner and above all as a winner!
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Pankaj Thakkar is a Managing Partner with Zeolyt Advisory and he has worked with various companies on capital structuring, refinancing, working capital optimization and advised lot of MNCs on how to do business in India.