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Top managers warn businesses against hoarding cash and ignoring growth opportunities

Top managers warn businesses against hoarding cash and ignoring growth opportunities

Caution urged over M&A deals

 

Businesses should resist the current temptation to hoard cash and ignore growth opportunities, say senior directors and managers polled by Interim Partners, the number one provider of interim managers to the private sector.

The survey of 900 interim executives found that the top priority for UK PLCs should be seeking organic growth (50% of interims) followed by managing the business for cash (20%, down from 31% last year).  Only 12% of interims said that companies should focus on reducing debt. (full results below)

Last year only 34% of interims had said that pursuing organic growth should be the priority.

Doug Baird, Managing Director of Interim Partners, comments: “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.”

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

In a sign that businesses are increasing hoarding cash, business deposits at UK banks are on the rise and stood at &pound382 billion on September 30 2011, up 24% from five years ago, when they stood at &pound309 billion.*

Doug Baird explains: “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.”

“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.”

The number of interims identifying cost cutting as the top priority for businesses fell this year, from 15% last year to 11% this year.

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

Interim Partners says that only a tiny minority of interims (6%) said that M&A should be a priority for UK businesses.

Says Doug Baird: “While interims think that businesses should avoid being overly cautious they do urge restraint when it comes to M&A.  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.”

Investment in R&D falling short

Half of the interim executives surveyed (49%) said that R&D suffers most from under-investment by UK PLCs, up from 36% 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.”

“If the UK is to return to strong growth and be more internationally competitive, businesses need to invest more in R&D.”

 

What do you think UK PLCs need to concentrate on most over the next 12 months?

2010

2011

Pursuing organic growth

34%

50%

Managing for cash

31%

20%

Reducing debt

14%

12%

Cutting costs

15%

11%

Mergers & acquisitions

6%

6%

Which UK PLC function suffers most from under-investment?

2010

2011

Product/service development (including R&D)

36%

49%

Operations

17%

15%

IT & business infrastructure

12%

12%

Customer services

12%

7%

Marketing

7%

5%

Finance (including management information)

7%

4%

HR

6%

4%

Sales

3%

3%

Bank of England.  Excludes financial sector businesses.

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