Reducing debt

Reducing debt

CFOs remind us that the credit crunch has not abated, with stringent criteria still in place from the banks and strict credit terms being imposed by suppliers of credit including trade creditors. The CFO’s weapon of choice – debt reduction – remains firmly in their focus. The fact is that the economic engine of companies needs a financial lubricant – debt. How does the CFO manage the opposing forces of fiscal management and the need to meet market conditions.

Prolonged financial constraint by banks presents the CFO with a challenge from within the organisation. The sales and marketing teams and, indeed, the board and CEO are all pointing to growth data and signals from the market that the economy is humming along an presenting more opportunities than they can possibly grasp. Yet the risk of a cash crunch remains. At the big end of town CEOs are presenting cases to the executive leadership team that debt needs to be managed; that there can be no resumption of easier liquidity just because the GFC has passed and consumers are opening up their wallets once again.

The CFO knows only too well about the debt paradox. As a company expands either through product launch or increased marketing in its existing markets, the engines of growth – new products, increased marketing spend and higher inventory needs, all expand – as do other costs. Capex may also increase in a growth scenario but given the inevitable pressure that arises from growth, the CFO has debt remaining in the cross hairs.

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Tags risk managementdebtexpense reduction

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