5. Aim for financial flexibility
Cutting costs has become part of the daily business operations for many food and beverage companies, especially during difficult economic times. A common objective is attaining positive cash flow, but the end goal is achieving financial flexibility. By having sufficient working capital at hand, your organisation would have more choices to cope with downsides in economic changes.
Keeping costs down is not limited to internal activities like bringing more efficiency to your organisation's activities or optimising your balance sheet. Establishing strategic partnerships where your organisation lacks dedicated resources for is also a cost-effective strategy. As disputed invoices and bad debts are rife in the sector, the typical areas where most food and beverage companies develop strategic partnerships in are credit management and collections. By tasking a strategic partner with managing a portion or all of your accounts receivable, you reduce administrative overheads while keeping bad-debt write-offs to a minimum.
Therefore, their costs are offset by the short-term as well as long-term benefits they deliver. This is especially true when a strategic partner with specialist expertise in collections and credit management and a global network becomes an integral part of your order to cash cycle. Their competences help protect your cash flow and profit margins, freeing up your organisation's resources that can be diverted into growth and expansion into new markets.
Economic downturns also open up mergers and acquisitions (M&A) and divestiture opportunities once you have financial flexibility. As lending conditions worsen, less resilient companies often face serious liquidity problems that they would be open to M&A transactions at attractive prices. As long as you can acquire economically viable and complementary businesses, and sell off parts of the business that are less profitable or no longer fit your organisation's profile, you increase your organisation's resilience to adverse economic events(2) and build momentum in your effort to improve profit margins and maintain strong cash flow.
(2) Of all the deals the resilients did, a quarter focused on divesting parts of their businesses versus about 18% for nonresilients. Compare that with acquisitions during the recovery: a whopping 96% of the total deal value for resilients was in acquisitions. [Research by McKinsey, 'Stronger for longer: How top performers thrive through downturns', (December 2019)]