The UK has a woeful record of business under-investment stretching back decades. A recent Institute for Government report highlighted Office for National Statistics data, which confirmed that our business investment lags well behind all the other members of the G7 group of developed nations. No wonder we have such poor productivity, for example some 15% lower than in France and the US in 2019 before the pandemic hit.
Why should businesses invest?
Unfortunately, without much stronger investment there cannot be the GDP growth, which is desperately needed in these present dark days of relentless adverse economic news to reverse the negative trends. Past growth has been built on the availability of plentiful and cheap labour. That era is well and truly over.
Not only can’t the economy grow without investment, nor can individual businesses. Research shows that companies that don’t invest don’t just flat line, they go backwards as tangible assets deteriorate and depreciate, leases run down and the useful life of intangibles such as software and brand goodwill ebb away.
Is it safe in the current climate to invest?
The simple answer is ‘yes’, but only based on a clear strategy, a fully worked-through set of financial and operational plans and provided there are adequate labour and financial resources to support the investment. Just because the general economic outlook is stormy, it doesn’t mean that there aren’t real opportunities for your business and in your market.
Related article: Business investment for a brighter future
Stress testing your investment assumptions
There is nothing wrong with healthy optimism but if the past three years has taught entrepreneurs anything, it must be to expect the totally unexpected. This means building meaningful contingencies into your investment plans for the utterly unforeseen.
What about your Balance Sheet?
The pandemic has seen too many businesses over-borrow and end up with distorted balance sheets, disfigured by excessive debt as well as a build up of legacy debts for such items as unpaid rent and deferred payroll taxes.
If the planned investment cannot be funded out of internal cash generation, then taking on additional finance should only be done after careful consideration of what your financial profile will look like, not just to you and your existing lenders, but key stakeholders such as suppliers and credit insurers. Losing their support can be disastrous for cash flow.
Can you get the necessary labour resources?
A prominent feature of the UK economy is the sharp tightening of the labour market as the pandemic, Brexit and changing working patterns has removed pretty much all surplus labour capacity. If your investment plans rely on recruiting extra staff resources, is that realistic and what might those extra pairs of hands cost?
Supply chain disruption
Doing supply chain due diligence before starting any project is essential these days. This is not just about whether any capital equipment required is available and in what timeframe, but the sustainability of supply of the materials and components needed for ongoing operations once things are up and running.
Process improvement, modernisation and automation
These aspects of how businesses function may not be at the top of entrepreneurs’ investment objectives, but they can be some of the most productive ways to build a business for a bigger and stronger future, even if they can be extremely challenging to implement.
There are very few businesses that can’t be improved by looking at these aspects and even fewer that won’t fall behind their competitors if they stick their head in the sand about how the business environment is changing in every market and every sector.
A comprehensive set of financial forecasts is essential
Heading into an investment without a clear idea of the financial implications is the short road to disaster. Without this, how can you know how much funding is required and not just for the capital elements, but the increased working capital requirement an investment’s success will generate.
How we can help
If you are looking for support in putting together, funding and then implementing an investment plan, Opus is here for you. We have extensive experience of these scenarios. One of our Partners would be more than happy to have a non-obligatory confidential chat with you. We can be contacted at rescue@opusllp.com or call us on 020 3326 6454 and we will arrange for a call with one of our Partners.