DON'T STASH THE CASH

  Senior directors and managers believe businesses should stop hoarding cash at the expense of growth strategies. A survey of 900 interim executives found that the top priority for UK PLCs should be seeking organic growth (50 per cent) followed by managing the business for cash (20 per cent, down from 31 per cent last year).  When it comes to reducing debt only 12 per cent of interims regarded this as a top priority. 

Last year the poll conducted on behalf of Interim Partners found only 34 per cent of interims prioritising the pursuit of organic growth. At the same time, the number of interims identifying cost cutting as the top priority for businesses fell this year, from 15 per cent 12 months ago to 11 per cent.

Viewing the results, Doug Baird, managing director of Interim Partners said: “Businesses are nervous because of the Eurozone crisis. Many are adopting very defensive tactics like hoarding cash and reducing debt.  Interims say that this is the wrong approach and they should be planning for cautious growth.”

  Evidence from the Bank of England does suggest businesses are increasingly hoarding cash. Business deposits at UK banks are on the rise standing at £382 billion at the end of September this year, up 24 per cent from five years ago.

“Some businesses are maximising their cash liquidity by managing for cash to make sure they can absorb any turbulence in the marketplace, like sudden falls in revenue or price increases,” says Baird. “The risk is that by creating large cash reserves, businesses might be forced to cut back on investment in essential assets like IT or machinery upgrades or research & development projects.”

Indeed, nearly half of the interim executives surveyed (49 per cent) said that R&D suffers most from under-investment by UK PLCs, a figure that is up from 36 per cent last year.

Doug Baird adds: “Time and again our interim managers tell us that the businesses they work with would benefit most from investment in R&D. It might take a long time for investment in R&D to generate returns but interims say long-term planning like that is vital.”

There appears to be some disparity, then, between the priorities pursued by businesses overall and those seen by interims themselves. While an interim manager is ideal for moving forward a company, creating and seeing through new initiatives, the tasks they are actually being given do not always measure up to this level of intervention.

However, according to Baird the situation is improving: “Many of the interim executives who took part in the research implemented cost reduction programmes for UK businesses when the recession hit,” he says. “They are saying that cost-cutting is a lower priority than it was a year ago.”

“Many more interim managers are encouraging UK businesses to continue to invest in growth than last year, despite the slow growth of the economy,” Baird adds.

One possible sign of greater focus being placed on paying attention to strengthening UK businesses may be seen in the attitude of interims to merger and acquisition activity. The survey found a tiny minority of interims (6 per cent) advocating M&A work this year.

“While interims think that businesses should avoid being overly cautious they do urge restraint when it comes to M&A,” notes Baird. “While the right deal can create huge increases in profitability, interims say that the time is not right for businesses to embark on rapid growth programmes.”

The overall message, then appear to be to encourage sure and steady growth from within an organisation. For continued success – or possibly just for survival – UK businesses need to invest internally and be certain of their footing before taking on more significant expansion.