In 1907, Robert Baden-Powell, an English soldier, devised the Scout motto: Be Prepared. Upon hearing the Scout motto, someone asked Baden-Powell the inevitable follow-up question.

“Prepared for what?”

“Why, for any old thing,” he replied.

In Scouting for Boys (published in 1908), Baden-Powell wrote that to ‘Be Prepared’ means “you are always in a state of readiness in mind and body to do your duty.”  More than a century later, preparedness is still a cornerstone of Scouting.

The same ‘preparedness’ applies when running a business.  This is particularly apt at present with supply chain bottlenecks and inflationary pressures, the fallout from the pandemic and the Ukraine conflict leading to economic uncertainty and financial (di)stress for many businesses.

This week the Financial Conduct Authority (FCA) will be sending out its latest Financial Resilience Survey (rebranded from the previously named Covid-19 Impact Survey) to many of the firms that it supervises.  The Survey aims to help the FCA understand how the current financial climate is impacting solo-regulated firms and informs its supervisory prioritisation, helping to reduce the risk of harm from firms with weak financial resilience and in turn protecting consumers.

I have read various articles and blogs, together with the obligatory (and often unfair) FCA-bashing comments, criticising the need for the Survey and the cost/resource required to complete it.  Whilst I can understand some of the views voiced, as a restructuring advisor I can see far greater benefits for both the FCA and regulated firms of completing the Survey.

The Survey contains some basic financial resilience questions; the kind of information that a firm should have at its fingertips.   Firms are asked to complete the survey on a “best effort” basis and the FCA expects that most firms should not need more than one hour to complete this.  If the Survey is taking far longer than an hour to complete, perhaps firms should be asking themselves the question, why?  Poor quality management information is often an indicator of a firm in, or potentially soon to be in, financial distress.

A further observation I would make is that the data being collected focuses much more on liquidity than other data collected by the FCA, and particularly a (crude) forward-looking comparison of cash available versus cash required for running the business. This is consistent with the focus on the availability of cash for a wind down event in the FCA’s thematic review on wind down planning (which I have commented upon in a previous article

For me, the importance of cash flow management and projecting forwards cannot be stressed enough.  In times of economic stress and uncertainty, having up-to-date financial information and liquidity is critical in managing and maintaining a business’s ongoing viability.

Often when I’m introduced to a new client, I’m surprised (sometimes astonished!) by the lack of awareness of the frailties of their own business, or the desire to ignore those frailties.  The macro headwinds are all pointing in the same direction, and it is inevitable that the least resilient firms will sadly fail.  So my advice to any business owner or director is to use the FCA’s Financial Resilience Survey as a self-review tool, and to seek professional advice if their firm’s resilience isn’t as robust as they first thought.  Many businesses have concentrated solely on surviving for much of the last few years; now is the time to really evaluate whether there is a robust business plan and budget in place that can provide a platform for long-term viability and profit.

To quote a famous scout, Bruce Willis as Joe Hallenbeck in The Last Boy Scout, “Be prepared, son. That's my motto. Be prepared.”