In our last newsletter we commented on how quickly things can change. None of us thought at that stage we would see the events of the last few months. However, the observations of massive change are not particularly helpful in themselves. The question is, what does this change mean for you.
It is crucial that every business takes stock of their position. The fall in consumer confidence is likely to impact every business in some way and every business needs to plan ahead for the impact of these tough times.
Here is a list of things that we recommend you consider:
Stand back and review the risks that face your business.
Consider the impact of slowing cash flow, decreased turnover,
tighter margins, increasing bad debt risk and what these mean for your business. Assess your peculiar risk exposures and whether defensive action is required.
Understand your market. What are your customers and suppliers going through and how will this affect you?
Establish KPIs and monitor them diligently. For example, calculate your breakeven point and daily or weekly revenue targets and track these carefully.
Understand what is around the corner. Monitor your forward orders and plan accordingly. Send staff on leave if there is a quiet patch ahead.
Ensure you are on top of your financial reporting. In tough times it is even more important for you to know exactly where you are at. You must know your outstanding debtors, stock levels, creditors to be paid, actual profit or loss last month and what your cash flow will be for the next month.
Manage margin as well as revenue. Maintaining sales at the expense of margin means you are going backwards. Accepting low margin sales to generate cash flow can be a way of running down stock levels but it is not a good recipe for success over the long haul. Understand the impact of decreasing margins.
Control your stock. Get rid of slow-moving and obsolete stock that occupies space and ties up cash resources. Ensure you have the right stock in the right quantities. Dont be tempted by volume discounts that result in stock level increases. Cash is king!
Build on and protect your niche market. Your niche market or specialisation is your competitive advantage so be proactive in protecting it and building it.
Protect your business relationships. In a competitive market your customers will have plenty of approaches from your competitors. Stay close to your customers.
Review all operating costs. Now is the time to review costs not later! Tighten up on approval processes so that optional spending is carefully controlled.
Manage your cash flow carefully. Consider ways of smoothing your cash flow such as running down stocks, tightening up on debtor collections or disposing of surplus vehicles or plant.
Review your finance facilities. If you have a sound security position you may be able to defer principal reductions or restructure your finances to achieve a lower cost of funds and reduced monthly outflows.
Be flexible. Consider ways to maintain the business at a lower cost. Trade off total hours in fixed time slots for reduced, flexible hours. Encourage staff to take accrued leave.
Be realistic but maintain a positive attitude. Don’t bank on hopes and expectations. Be realistic in your assessments and act accordingly. Make the hard decisions but, dont let negative sentiment overtake. Enthusiasm is contagious!
Make good use of idle capacity. Reinvest in the things you never seem to get to: systems, promotion, image etc. This will strengthen your business for the future.
Keep your bankers informed. In difficult times it is vital that you stay close to your bankers – don’t surprise them!
Manage your personal spending as well as business costs. Be willing to make the hard decisions at home as well as at work.
Saward Dawson has skilled and experienced business advisers who are ready to assist you through these hard times. Why not make a time to discuss how to best manage your business in the tough times ahead.