How to respond to change and secure future cash flow

The SME sector in Finland is being shaken up by the corona crisis – and the aftermath is still ahead of us. Changes in the operating environment are now forcing many entrepreneurs to reform, but what are the means of change for companies, and what kind of change should be invested in?

During the coronavirus epidemic, the life cycle of companies has shortened, which means that companies have been driven down at a busier pace than before. On the other hand, new businesses have also been set up at a brisk pace, around 100 more than in the corresponding period before the coronavirus. According to Petri Malinen, economist at The Finnish Entrepreneurs, this is a trend of creative destruction, i.e. new companies are being created to replace the old ones, when a change in the operating environment has forced companies to close down earlier than planned.

In an interview with Yle, Malinen says that the second quarter of the year will be even more challenging as the buffers start to drain and the debt ratio of companies increases. Despite the clear risks, the transformative power of creative destruction has also accelerated the development of many companies, for example in digitalization. According to a study commissioned by The Finnish Entrepreneurs and Elisa, two out of three companies that have succeeded during the coronavirus epidemic praise the role of digitalization behind their success.

Digitalization has been utilized, for example, to bring forth hidden demand and to speed up encounters between potential customers and service providers. Some companies have developed completely new business models using digital solutions. Especially younger companies have benefited from digitalization during the coronavirus epidemic, best examples are from the ICT sector, business services, construction and real estate business and commerce. The coronavirus also accelerated digitalization of companies that had persistently avoided it before the crisis, most strongly this was reflected in the service sector.

Those companies that have survived the crisis, and will continue to survive, have been bold in reforming and changing their old policies and practices. However, investing in new and unknown outcomes is always a risk that needs to be carefully weighed up. Is there certainly a need for investment, or could the renewal be started with lighter measures? Will the funding for the investment come from outside, or is the company's current financial situation sufficient to cover the investment needs? Does the investment create new growth opportunities for the company in the future?

The main reason for why companies withhold from investing in developing and growing their business is, surprisingly enough, cautiousness, rather than lack of funding. According to a survey commissioned in 2019 by Danske Bank, up to 37 per cent of entrepreneurs responded that they had no need to invest, while shortage of funding was the reason only for a quarter of the respondents. The effects of the coronavirus were not yet visible in the results of the 2019 study, but we would bet that cautiusness among entrepreneurs has increased even further as a result of the pandemic.

To smooth the way for you, we listed a few key ways to help you keep a peace of mind when considering investment decisions. Get your tips from below!

1. Invest in customer satisfaction

In addition to acquiring new customers, getting your old ones to stick around should be the number one priority for every entrepreneur. Satisfied customers not only bring money to the table, but in the best case also recommend your product or service further, so the positive impact is multiplied. It is therefore worth investing in developing long-term customer relationships. One way to keep customers happy is to guarantee long enough payment terms for sales invoices. There are solutions available that make it easier to balance with and offer longer payment terms. To keep your customers happy, you don't have to rely entirely on your own cash flow.

2. Keep your cash flowing

Even if your thoughts are already in the future, make sure your cash flows at a steady pace even under the reform. Cash flow that is fast enough and as predictable as possible is a lifeline for the company, because even if the outlook for future sales is bright, there may be surprising events that push the cash buffer into a tight spot. Securing cash flow, for example through funding your invoice receivables, will help you to keep the cash flow going while the reform process is still underway.

3. Dare to renew – and grow

Renewal, and the desire for growth, should be on the minds of every entrepreneur even in more difficult times. When well planned, investments bring certainty to the future, which facilitates both economic peace of mind in the present and the company's future chances of survival. Flexible financing solutions enable taking advantage of every growth opportunity, without lengthy and distressing bank loan negotiations. Whether you need to secure current cash flow or invest for future growth, we will help you to find the financing solution that suits you best. Contact us for more information!