Carly Bleathman
Partner, Business Services & Outsourcing
Our latest survey of 500 mid-sized business leaders revealed three in ten (28%) companies now see the growing financial burden as their top concern going into the new year, with 32% of mid-sized businesses anticipating the need for additional financial support – including bank loans or government grants – to help navigate the hurdles of 2025. Staying ahead of economic shifts and navigating turbulent economic times will support your business' growth and profitability, and help you secure funding and investment in a challenging market. Here we share six key ways to maintain financial stability but still drive growth.
Extracted from an interview with Carly Bleathman, Partner, Business Services & Outsourcing and Derek Neil, Partner, Deals
Interest rates, inflation, and geopolitical concerns – businesses are navigating increasingly complex issues every day. If you want to remain financially resilient in turbulent times, it is important not to lose sight of the fundamentals.
Regardless of the economic environment, the focus should always be on strong cash control. By closely managing and monitoring cash flow and building cash reserves, businesses can remain flexible in the face of uncertainty or any unexpected challenges. But while you need to regularly review your current financial situation, it is also important to think ahead.
The starting point for striking a balance between pursuing growth opportunities and maintaining your current position is having a good financial model – understanding the options your business has and the funding available to deliver these.
A strong financial model is essential to building financial resilience – giving your business clearer financial visibility, improving adaptability, highlighting areas for optimised resource allocation and giving potential investors confidence in your business. It can also aid your strategic planning, giving you a better understanding of how different scenarios such as expanding into a new market or interest rate rises could impact your business.
Financial models can be complicated, however with the right approach, they can be designed to be easy to navigate and flexible, giving you confidence that you are making informed decisions across your business.
Extracted from an interview with Richard Dammermann, Head of Working Capital Management
We are in an unprecedented time of market pressures from supply chain disruption, high core inflation, new BAU, increased regulation (e.g. ESG), geo-political uncertainty to low consumer confidence. Adapting to these pressures, and planning for whatever future challenges might come along, typically requires an investment of both time and money.
Trying to get this investment externally can be difficult with the cost of borrowing at one of the highest levels of the last two decades, however businesses can look internally – releasing cash from internal working capital is often the cheapest source of funding available, and a focus on optimising operations often leads to EBITDA improvements.
Most businesses operating in the UK have excess cash hidden in their operations equivalent to at least 10% of turnover – a significant amount to build financial resilience and invest in the future, technology and their workforce.
The key to realising this value starts with a detailed review of underlying operations and a good understanding of the art of the possible – leveraging leading practices from across sectors and across countries.
Extracted from an interview with Derek Neil, Partner, Deals and Sarah Ziegler, Head of Private Equity Coverage
In the current economic climate, businesses are facing two major challenges – lack of investment and the increased costs of borrowing. BDO’s bi-monthly survey of 500 mid-sized businesses reveals that more than a quarter (27%) say accessing capital is one of their biggest challenges over the next six months. Many businesses have found it difficult to raise debt as banks have become more cautious – but there are other funding strategies to consider.
Private equity investment can be a great source of funding, especially for businesses looking to accelerate growth. Private equity investors look for specific characteristics. These include the macro-economic environment and micro-economic considerations such as value, growth, margins and cash conversion. They will also look at the owner, the management team and they are particularly drawn to recurring revenue models and predictability in cash generation. The relationship can be mutually beneficial, with the potential for highly rewarding outcomes when the interests of the business and the investor align and work together effectively.
There are certain considerations that come with attracting and accepting private equity backing. Private equity investors have high expectations and bring a different way of working to any business. They are looking for a high level of professionalism and transparency, which can bring challenges to some businesses where there may be a need for improving financial reporting, a more complex structure, and the need for more technical accounting. This means preparation is key and you may need to invest in the technology, processes and people in your finance team to deliver that crucial financial information prior to and after a deal.
Extracted from an interview with Adam Baron, Growth Advisory
Companies seeking to raise capital must showcase financial resilience by demonstrating solid KPIs, efficient cash flow management, and a clear path to profitability. Investors scrutinise these metrics when evaluating potential opportunities.
Certain metrics can significantly increase a business's appeal to investors by highlighting its financial resilience:
CAC / LTV ratio of 3:1 - For every £1 spent on acquiring a customer, the business should generate at least £3 in revenue from that customer over their lifetime.
Pathway to profitability – Most series A investors would prefer this to be less than 18 months post investment .
Burn Rate - Investors typically want to see a burn rate that allows the company to maintain at least 12-18 months of runway. This gives businesses enough time to reach critical milestones or raise additional capital before running out of cash.
Gross profit - Investors typically look for gross margins above 50% for product-based companies and above 70-80% for software and tech-based companies. Higher margins demonstrate a strong business model and the ability to scale profitably.
Customer Retention Rate - Investors generally expect a retention rate above 85%, especially in subscription-based or SaaS businesses. A lower churn rate (below 5-7%) is typically viewed as an indicator of strong customer engagement and loyalty.
Burn Multiple - The burn multiple is the ratio of net cash burn (how much money the company is losing) to net new annual recurring revenue (ARR) or revenue growth. It indicates how much money a company is spending to generate each pound of additional revenue.
Marketing as a percentage of revenue:
By fine-tuning these aspects, businesses can optimise their chances of securing investment at the best possible valuation and positioning themselves for sustainable, long-term growth.
Extracted from an interview with Dr Tauni Lanier, Director, Sustainability & ESG HUB, Zoe White, Senior Manager, Risk & Advisory Services and Frederic Larquetoux, Client Service Partner, Financial Reporting & Corporate Reporting Advisory
ESG can no longer be considered an add-on as it is becoming increasingly important to consumers, stakeholders and investors. So if you want to grow your business in the most stable and resilient way, ESG factors need to be an integrated part of your commercial growth strategy.
It is important to remember that ESG is not just focused on carbon footprint reduction – it covers a huge range of environmental impacts, your business social contribution and issues around ethical behaviour and corporate governance.
Proactively addressing ESG issues can have a serious impact on your bottom line. Practices such as adopting greener energy and focusing on employee wellbeing to reduce employee turnover can result in long-term cost reductions. And a strong ESG focus can provide innovative opportunities and give your business a competitive advantage – resulting in products and services that consumers are willing to pay a premium for.
Taking time to explore and understand what ESG means for your business can help clarify how your ESG strategy can effectively support your core commercial ambition. Engaging with investors and scanning the consumer horizon will help you understand the environmental and social issues that are important to them, as this can help your business create long-term value and ensure growth in a world where priorities are changing.
The need for ESG reporting is not only driven by changes in the regulatory landscape but is becoming more investor-sensitive. Businesses looking to attract investment need a robust ESG strategy and the capacity to report against it. If an investor thinks your business model will be invalidated by changes in regulation or consumer behaviour, you will struggle to secure funding.
It is necessary to back up any claims with well-defined and assured data so you can demonstrate exactly how your business is honouring its ESG commitments and, in turn, give investors confidence in the future of your business. More investors now have minimum standards on ESG, so these forward-looking funds will examine whether your business is operating in a way that will comply with potential future legislation, as businesses with strong ESG factors are now being considered less risky and more sustainable in the long term.
With that in mind, it is crucial to get under the skin of the legislation, standards and frameworks and not just see them as a compliance or box-ticking exercise. It should be about understanding how operating as a sustainable business is crucial to building long-term financial resilience.
Extracted from an interview with Carrie Rutland, Partner, Innovation Incentives
R&D tax credits can make a significant financial contribution towards the cost of developing new technology and engineering solutions. However, fundamental changes have been made to the R&D tax credit regime over the last 12 months, with a view to eliminating errors and fraud in the regime, so it’s important to be up to date on the current rules, if you wish to make the most of this valuable tax relief.
Set out below are a few key points to note:
