Publications

Fostering Financial Resilience: Key Strategies for EU Enterprises

Robert Nilsen, Associate, MDN Group

Economic downturns are an inevitable part of running a business. Yet research by Boston Consulting Group indicates that only a tiny fraction of companies (around 14%) managed to increase sales growth and profit margins during the four global recessions since 1985. 

Many businesses focus on defensive, short-term moves, often undermining long-term stability. Below, we examine four essential ways to build financial resilience and secure lasting success in Europe’s competitive marketplace.

Recognising the Resilience Gap

One critical factor behind a company’s ability to weather economic storms is how it manages routine finances. Working capital management, the money flow for day-to-day operations, often predicts whether a firm will scramble under pressure or adapt successfully. Mid-market companies, in particular, frequently operate with only 30 to 90 days of liquidity, a tight margin that can prove risky when large credit lines are unavailable.

By contrast, organisations with robust cash management practices can be 25% more effective at handling disruptions. Maintaining a healthy cash position provides the agility to invest in growth opportunities or protect against sudden financial shocks, creating a decisive advantage when markets are volatile.

1. Bolstering Cash Flow and Working Capital

Holistic Cash Management
Strong working capital management goes beyond monitoring the company’s bank balance. It involves a 360-degree view of receivables, payables, and inventory. Regularly reviewing payment cycles can free up funds for strategic use. For instance, renegotiating supplier agreements or extending payment terms can allow you to prioritise cash flow where it matters most.

Capitalising on Downturn Opportunities
Periods of economic uncertainty sometimes bring attractive deals in areas like mergers, acquisitions, or distressed assets. As Baron Rothschild supposedly said, “The time to buy is when there is blood in the streets.” Firms that maintain strong liquidity can seize such chances. During the 2008 crisis, well-capitalized companies acquired undervalued assets and positioned themselves favourably for the rebound.

“Without a focused approach to working capital, businesses can find themselves at a standstill during economic turbulence,” says Denis Stukalov, Managing Partner at MDN Group. “Proactive cash management doesn’t just safeguard daily operations; it can also fund strategic moves that position a company for future growth.”

Practical Steps

1. Reduce DSO (Days Sales Outstanding): Shorten the timeframe for customer payments by offering early payment incentives.
2. Optimise DPO (Days Payable Outstanding): Use supplier credit terms wisely while maintaining strong vendor relationships.
3. Minimise DIO (Days Inventory Outstanding): Keep stock levels lean, exploring a just-in-time approach if feasible.

2. Cultivating Operational Flexibility

Review Expenditures Proactively
When top-line revenue becomes unpredictable, organisations need to stay agile. Conduct frequent cost reviews and question whether certain expenses align with current business objectives. Encourage teams to propose alternatives that reduce overhead without sacrificing quality. These measures help protect profit margins even when demand drops.

Embrace Technological Transformation
Automation, data analytics, and cloud computing can improve accuracy in forecasting and enhance decision-making. They can also cut operational overhead and enable remote or hybrid work setups. By adopting digital tools, businesses gain the flexibility to react quickly if market conditions shift. This approach was critical for American Express during the 2008 downturn: the company reined in nonessential costs, diversified its funding, and embraced digital solutions, fueling a significant increase in its stock value over the next decade.

3. Taking a Proactive Approach to Financial Risks

Building Safety Nets
Financial risk management often starts with creating a cushion of liquid reserves. This might include preserving unused credit lines or consolidating high-interest loans into a single, lower-interest facility. Such moves free up working capital and ensure your business can seize opportunities rather than merely react under pressure.

Insurance and Contingency Planning
In rapidly changing markets, smart insurance policies can safeguard your company’s operations. Regularly revisiting coverage ensures it aligns with updated risk profiles. Specialised business interruption insurance, for example, can protect revenue when unforeseen events disrupt daily activities.

Act Early and Act Fast
A key characteristic of resilient organisations is the ability to anticipate problems before they arrive. By monitoring emerging market trends, regulatory shifts and stress-testing different scenarios, companies can respond quickly. This readiness often proves decisive in turning challenges into avenues for growth.

4. Balancing Short-Term Measures with Long-Term Vision

Driving Sustainable Growth
Businesses that balance immediate survival with future-oriented investments tend to fare best in uncertain times. Although cost-cutting is sometimes unavoidable, those efforts should be targeted. Rather than curbing all expenses, focus on specific areas for reduction while maintaining spending on initiatives that bolster competitiveness.

“During a downturn, there is a temptation to tighten every belt simultaneously, but that is not always the best approach,” observes Martin Bakker, Partner at MDN Group. “By strategically investing in core operations, you not only sustain your current performance but also set the stage for stronger growth when the market rebounds.”

Learning from Apple
In 2001, Apple introduced its first iPod as the United States economy entered a recession. Revenues dipped by a third, yet the company continued investing in research and development, leading to a series of product innovations that transformed its global standing.

Conclusion

Developing financial resilience calls for a comprehensive strategy. Sound cash management, operational flexibility, proactive risk mitigation, and a commitment to innovation each play a vital part. 

While downturns can be unsettling, they also present opportunities to acquire undervalued assets, refine internal processes, and strengthen competitive positioning. By adopting a thoughtful blend of short-term caution and long-term ambition, European businesses can look forward to greater stability and success.