According to Grant Thornton’s latest data, business leaders’ fears over a shortage of finance have eased somewhat over the last year, but it remains a real concern for many. Just under half (47%) of business leaders cited access to cash as a constraint on their growth, compared to 50% in the second half of last year.
Global percentage concerned by access to cash (data over time - last 11 years)
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“As interest rates go up in several markets, chief executives and chief financial officers are finding themselves in an unfamiliar situation. For years it’s been relatively easy for businesses to get money. But, as interest rates have gone up, the model has changed, and the pricing of risk has gone up too, says Ian Pascoe, CEO and managing partner, Grant Thornton Thailand.
“Underperforming businesses will fail because they won’t have access to the debt market as the risk is just too high. So firms really need to get the fundamentals right. They need to test their business plans and make sure they’re demonstrating just how robust they are.”
When inflation is brought back under control, advanced economies’ central banks are likely to bring real interest rates back towards pre-pandemic levels. The IMF suggests that recent increases in real interest rates are likely to be only temporary.[iii] But this is little solace for business leaders now. Globally, just under 12% of firms see interest rates and funding as a significant threat. This challenge, along with ongoing economic uncertainty, events in the banking sector and stubborn inflation, will continue to undermine firms’ investment ambitions, meaning they need to plan carefully to make sure they are as attractive as possible to investors.
Percentage that see interest rates and funding as a significant threat per region
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Kalpana Balasubramanian, CEO and chief thinker, Grant Thornton dGTL, explains “When funding investment, business leaders need to think a bit more laterally than they have previously. For example, many banks have created sustainable finance targets which they are looking to fulfil. At the same time, both venture capital funds and private equity funds have developed criteria including ESG metrics. There may be pools of cash available for those firms that can show they meet certain sustainability or social criteria. Firms that can demonstrate that they are sustainable over the long term will find it easier accessing finance.”
Roy Nicholson, Principal, Grant Thornton US, says “It’s absolutely right that, faced with the challenges we see today, business leaders are taking a second look at their organisations and thinking of the investments they need to make in order to emerge stronger in the future. The truth though is that firms should be making these decision on an ongoing basis, and they should be constantly trying to identify ways of operating more efficiently so that they can leverage those cost efficiencies to innovate in the future.”
This should be a continual improvement activity. Firms need to harness a mid-market mindset and their entrepreneurial spirit so that they remain focused on continually improving their processes and constantly innovating. Leaders that can achieve this and put in place the right plan to weather the challenges of persistent inflation, rising costs, and skills shortages, will be in a position to grow as markets begin to recover.
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