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Five actions your private company can take to manage short-term challenges
In today’s rapidly changing environment, private companies face numerous challenges for both organic and inorganic growth. Rising costs and interest rates, the tight labor market, longer lead times for inventory and supplies — these are just some of the factors pressuring cash flows and margins. Private company leaders need to carefully balance their responses to short-term issues while maintaining a long-term vision for growth.
In our PwC Pulse Survey: Executive Views on Business in 2022, 57% of the private company leaders planning to capitalize on digital transformation initiatives this year said technology is one of the biggest limiting factors to growth. For many private companies, capacity and efficiency are hindered by antiquated digital platforms, one-off processes and disparate systems. In addition, a future-ready workforce wants the latest and greatest tech solutions. It’s never been a better time to invest in technology to streamline business processes, drive efficiencies and improve decision-making. The benefits of these investments, combined with having stable and scalable technology platforms, are critically important — particularly when exploring inorganic growth.
Given these challenges, and with the threat of an economic downturn, private companies need to be agile to meet evolving business needs. Put simply, you need to examine all areas of your business to preserve cash flow and drive growth.
Here are five things you can do to help tackle today’s challenges and come out stronger on the other side
- 1. Transform the role of your finance leader and supporting finance function
- 2. Optimize your supply chain and consider other operational improvements
- 3. Prepare for increasing cyber threats and ransomware attacks
- 4. Address talent acquisition and retention
- 5. Consider whether inorganic growth is right for your business
1. Transform the role of your finance leader and supporting finance function
Most private company leaders have never seen a business environment like this before. In uncertain times, the role of finance needs to change and develop a skill set that goes beyond historical financial scorekeeping. The key to financial resilience will be the ability to see around corners, understand short-term risks and balance those risks with long-term priorities.
Finance will play a critical role in navigating this economy, especially in the event of a recession, by providing enhanced visibility into future performance and taking action to ensure stability. This can be done with continued investment in digital transformation, driving technology solutions that reduce costs and generate data-driven insights and forecasting. Having a clear, forward-looking view will help you allocate workload appropriately and help make sure your bank relations and balance sheets are stable.
Creating a roadmap for the different scenarios that could occur over the next few years will best position your company to survive and even thrive through greater scalability and market share. We recommend developing a five-point plan to help make sure your finance function is in good order.
2. Optimize your supply chain and consider other operational improvements
While some aspects of global and domestic supply chains are gradually returning to something looking like the pre-pandemic “normal,” other areas remain highly challenging. Many companies still struggle with low fill rates, declining inventory turns and accurate demand forecasting. With interest rates on the rise, the negative effects of suboptimal inventory management are felt even harder. Adjusting supply chains to meet new business needs is a critical step to safeguard and grow your business.
Top concerns in the current environment include excess inventory, demand forecasting, lost sales, cost management, order inefficiencies, talent and space crunch. Help improve your supply chain by focusing on these areas.
3. Prepare for increasing cyber threats and ransomware attacks
All companies face cyber threats, but oftentimes smaller businesses can be more at risk. Private companies need to invest in the right technology and resources now to maintain the cyber integrity of their organizations and to ward off and recover from future, more advanced threats. Investing in cybersecurity and integrating capabilities to better manage risk has the added benefit of lowering costs through automation in a tech-enabled manner. You can take a number of steps now.
4. Address talent acquisition and retention
With just over three-quarters of private company leaders telling us that talent acquisition and retention challenges are their top risks to achieving their goals in 2023, these executives are taking action. They realize they have to make a stronger case to their workforce to stay, and they’re implementing strategies to appeal to employees where it makes sense. Their initiatives include enabling more flexible work options (84%), increasing compensation (70%) and improving benefits (43%). Here are some other things you can do to improve talent acquisition and retention.
5. Consider whether inorganic growth is right for your business
For companies who are looking to grow through mergers & acquisitions, economic and geopolitical uncertainty have created challenges but also opportunities. The current market conditions bring a reset in valuations, a drop in private equity competition, and an increase in the amount of dry powder in the system – moving us from a selling market to a buying market. Private companies who have strong historical performance and access to capital may be able to seize on growth opportunities by making an accretive acquisition that aligns with their existing capabilities.
Deals that involve acquiring and integrating a smaller company that can help your company gain access to key products, technologies or talent are known as “tuck-in” acquisitions. In some cases, deals made for technology and technical talent can help companies keep up with the pace of innovation, and can still bring change down the road, even if not seen as “transformational” at the outset. Here are some considerations for selecting and integrating the right target in a tuck-in acquisition.
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