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How to prepare for a Brexit 'cash crunch'

How to prepare for a Brexit 'cash crunch'

Following recent news around the potential economic impact of Brexit, businesses of all sizes should be making plans to adapt and thrive.

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Blair Nimmo

Partner, UK Head of Restructuring and Global Head of Insolvency

KPMG in the UK

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Preparing for a Brexit working capital crunch

KPMG is helping businesses of all sizes respond to unprecedented economic uncertainty generated by Brexit. While clients face numerous complex issues, we are recommending they address a shortlist of critical issues first to reduce the impact on day-to-day liquidity, access to capital and bottom line profitability.

What are the big risks?

  • Border delays obliging firms to hike inventories, leading to a strain on working capital.
  • A drop in sterling of more than 20% putting pressure on margins. 
  • Operations becoming more costly as labour becomes scarcer and more expensive.
  • A fall in consumer spending driven by general uncertainty over the direction of Brexit.
  • A reduced appetite among banks to lend as economic and contractual uncertainty spreads.

Working capital and liquidity

KPMG’s working capital diagnostic tool uses proprietary data visualisation to show clients how they can offset the financial impact of building an inventory buffer. Typically our optimisation programmes can save you by identifying opportunities, using our innovative diagnostic approach, between 10 and 15%.

We are working with clients on short-term cash forecasting to understand whether they can fund greater investment in stock within current facilities.And our cash optimisation methodology helps clients identify priority initiatives that can improve immediate and long-term liquidity, help enforce controls over cash procedures (in order to conserve cash) and introduce KPIs that demonstrate the effectiveness of management initiatives.

Supply chain risk management

We’ve been spending a lot of time helping our clients assess and respond to the potential risk of supply chain interruptions as a result of Brexit. We are modelling the impact of import cost rises for some clients and helping others reposition their supply chain to avoid or minimise product outages.

Using client data, we have designed, developed and delivered supply chain risk management processes and controls for firms in a variety of situations, and across multiple sectors. That gives clients a clear overview of risks and supplier performance, enabling them to develop robust contingency plans and, ultimately, ensures their operations keep rolling with the minimum financial impact.

Stakeholder peace of mind

Reassuring lenders, suppliers and customers that your business is resilient and ready for whatever comes next is vital.

Lenders in particular will want to know that businesses have modelled all the main Brexit scenarios. We have been supporting businesses in this challenge – helping clients understand how different outcomes would impact liquidity, the business’s funding requirements and what solutions might be available if they face a squeeze. 

Debt advisory

To date Brexit has not materially impacted debt availability but as we near 29 March 2019, lender behaviour and risk appetite may become more inconsistent and unpredictable. 

We’re advising a number of clients to accelerate planned 2019 re-financings to avoid having to approach lenders during a period of significant uncertainty. In any event, we anticipate that the volume of preparatory work required for any capital raising next year – as well as ongoing lender management – will be much greater than before. 

How can we help?

  • Capital structure planning
    Align capital structure with long-term strategic objectives.
  • Funding options and alternatives
    Undertake a detailed credit assessment and debt capacity analysis, assessing market-based funding options and advising on potential available terms.
  • Debt raising and refinancing
    Advise on the structuring and assist with the execution of debt facilities across all markets.
  • Restructuring and negotiation
    Help clients manage lender relationships, negotiate covenant adjustments and facility extensions as well as advise on restructuring and recapitalisation options.
  • Credit rating evaluation and advisory
    Assist in the formal credit rating process, assess likely credit rating outcomes and advise on business and capital management initiatives designed to enhance credit profiles.

We have experienced professionals working across the UK that are able to support our clients in dealing with some of the issues being faced.

To contact us on any of the links below: 

Scotland: Alan Flower 

North: Kenny McKay

Mids & South: Andrew Burn

London: Will Wright

International: Mark Raddan

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