Do high growth companies need to consider longer term approaches to cash flow concerns?

An estimated 9 million employees are currently furloughed under the UK Job Retention Scheme, but for growing companies, their employee base can be limited in numbers, with many employees covering several roles, and hence, furloughing is not really an option.

On Monday 20 April, however, the Government announced two specific measures aimed at UK based high growth companies, namely the new Future Fund bridging finance, and the new R&D grants and loans initiative to be administered by Innovate UK. These are broadly to be welcomed, but it is still too early to understand to what extent the new measures will address the cash-flow concerns of the UK high-growth sector.

From a review of the headlines published by the Government regarding the new Future Fund bridging facilities, a positive is the financing will be in the form of convertible loans.

If we work on the basis at this stage that the convertibles are quasi equity, this is key as many high-growth companies are not in a position to take more debt onto their balance sheets, and indeed for this sector, much of the cash solution has to be equity driven.

However, by definition, the Government measures are designed to be short-term support, and so the questions remain as to what high growth companies need to consider for longer term structural solutions. At present, there are two predominant strategies;

• Seek further equity funding from key shareholders, but in practice that will likely be from private equity or venture capitalist backers. Unfortunately, it is unlikely that such investors can support each and every business, with recent evidence of a significant number of high growth companies entering administration; or
• Looks for merger, acquisition or other alliance options which can allow businesses to reduce costs and access funding.

So what next? Time is of the essence, but any business under pressure needs to quickly engage with key shareholders and consider all options. But one certainty is that consolidation can be expected and hopefully this allows more UK high growth businesses to respond, recover and thrive.

#Respond; #Recover; #Thrive