Managing Volatility on the Road to Recovery

We have been seeing some sprouting green shoots of recovery here at Polestar over the last three weeks or so, albeit advancing at different paces by sector, with technology and software, insurance and logistics inevitably more positive than travel and restaurants.

In the current environment many businesses are advancing with a somewhat less-than-healthy level of headroom than coming into the year.  With a rapid pickup in trading, many will be concerned about further reductions from working capital changes, especially if trading partners are themselves under pressure and hence unwilling or unable to provide extended credit or prompt payment.

Predicting demand for products/services is perhaps even less of a science than normal and the natural tendency in such a situation is to look for ways to reduce risk by reducing outgoings such as staff and/or stock.  However, some businesses will see an instant initial rebound from pent up demand (a good example looking round the Polestar office might be a hairdressers!), before reverting to a lower sales level.  So, reducing your ability to service such demand can be detrimental.

One area to cover in your planning is how to best manage/restrict potential volatility. With Brexit back in focus, a consideration for many of our clients will be the assessment and management of FX risk, even more so since the procurement of stock, lead times and ultimately demand for product is likely to be subject to a greater degree of uncertainty than previously.

Historically, you may have managed this internally, happy to take the rough with the smooth over time, but for those with less headroom and significant/changing FX exposure, perhaps this is worth a fresh look?