Driving the Capital Agenda - Preserving Capital - Ernst & Young - Canada

Preserving Capital

Every business needs to continuously assess the potential impact of evolving market conditions on the performance of its operations and its capital base.

Even in a recovering market, companies believing themselves in a stable position can find their situation can deteriorate quickly.

The preservation of capital requires that companies continuously scour their strategies, markets and balance sheets, to reassess strengths and weaknesses.

Such reviews should extend beyond the business to include the health of both its supplier and customer base. Analysis should include:

• Cash flow and working capital management
Sound cash flow management and forecasting practices are critical to the survival of a business.

• Managing debt and liquidity 
In today’s climate, lenders are understandably reducing risk while raising margins. Those businesses needing to refinance debt facilities can expect challenges aplenty.

• Stakeholder management
Balancing the often competing interests of stakeholders is challenging at the best of times, sometimes formidable.

• Cost reduction 
Managing and reducing costs has always been a key business priority, but for stressed businesses in the post-recession economic environment, it’s critical.

• Managing risks across the value chain 
Vendors and customers may be a company’s lifeblood but as a result are also sources of considerable risk. Leading companies are learning to proactively identify, measure, monitor and ultimately mitigate potential disruptions.

• Uncovering cash in tax 
It’s almost unavoidable — as economies sour and operating conditions evolve, companies wind up with less than efficient tax structures and practices. As such, wise businesses are reviewing their tax strategies to reduce expense and uncover liquidity.

• Seeking protection 
Preserving capital and the value of the business can also mean seeking protection owing to cash flow constraints, creditor pressure or the withdrawal of funding.

• Corporate efficiency 
Legal entity rigor is part of any high performance organization. Companies should look internally and examine both the size and complexity of their legal entity structures.