Investment protection during financial crisis
Dmytro Ovsii, Managing partner, GORO legal law firm
The main characteristic of any crisis, including financial, is uncertainty: lack of a clear understanding of directions for development, instability of financial rate and inflation, decline in activity in almost all areas, etc.
At the same time, crisis is the period when it is possible to objectively evaluate investment assets, their attractiveness, reliability and functionality, as well as expenses and team productivity.
In any case, inaction is the worst tactic in times of crisis.
The first action a company should take in such situation is to develop a so-called “action plan”, which should include measures to protect investments and financial audits, and only then start looking for earning opportunities during recession.
Action plan should include several scenarios.
Investment protection is a set of actions aimed at reducing risks that may lead to their loss.
Investment protection includes the following:
- audit of your investment assets, legal audit or due diligence, this includes actions to clarify status of ownership of assets, with obligatory clarification of all legal subtleties: who owns what, who can claim this or that property, checking existing contracts, their duration , analysis of bank agreements, etc. It is imperative to revise corporate agreement, and if necessary, provide for a number of guarantees that investor can count on, including indemnification or exit from business;
- inventory of “weaknesses” of financial investments, including reassessment of value of investment projects, determination of degree of stability, and stability of financial investments, qualitative and quantitative assessment of investment projects;
- assessment of possible risks, financial, legal, economic, including risks of changes in exchange rates, interest rates, strengthening or weakening of inflation, risks of the general development of economy in the country and in the world;
- management audit;
- cost optimization.
After assessing the existing risks, it is necessary to develop a specific plan of action that will increase security of investments. Also, action plan should include a series of stabilization financial actions aimed at maintaining and improving current situation:
- restructuring of business, introduction of new juridical persons, carrying out merger or acquisition procedures, revising economic model of business (if necessary);
- constant control and monitoring of financial resources, namely: regular preparation of financial reports on the current state of finances, monitoring of incoming and outgoing payments, a detailed analysis of upcoming payments and possible changes in the volume of cash receipts, including necessary payments. For such financial control, it is possible to create a centralized financial management system;
- banking and tax planning;
- review of dividend and share buyback policies;
- protection of intellectual property, data, and any other business information;
- creation of an anti-crisis investment management group.
To summarize, protection of financial investments is a mandatory and necessary measure during a financial crisis. Inaction in this situation can lead to significant losses, or even to the loss of all financial resources. Development of a reliable action plan, which will include several options for development of the situation, as well as assessment of all financial risks, will help preserve your finances, as well as find new ones that can be increased, despite the difficult situations that have arisen.
In any case, you should understand what actions to take first, and what needs to be done in the second place, invest in more promising projects, and wait a while with those that seem indisputable to you, suspend projects that are not too important for your business. And always remember that crisis is not only a problem, but also an opportunity.
Key tips:
- Drawing up an action plan for several options of crisis development.
- Audit of investment assets, management.
- Risk assessment (legal, financial, economic).
- Protection of investment assets.
- Optimization of work processes based on audit.
- Business restructuring.
- Creation of an investment crisis management group.
- Constant financial monitoring and control.