Surviving the downturn: a Director's toolkit - Business Works

Surviving the downturn: a Directorís toolkit

Andy Berrow

Itís true: times are tough says Andy Berrow of Business Link. But believe it or not, isnít all doom and gloom. Though the front page of the newspapers are splashed with the slogans, ĎCredit Crunchí and ĎGlobal Recession,í the key thing to remember in a period of downturn is that it will get better, eventually.

The threats

The challenge is to make sure that you and your business are still around to take advantage of the upturn when it comes along. This means being wise to the threats to your business and introducing measures to deal with them. By the same token, take advantage of the opportunities that present themselves through changing consumer behaviour.

So let us look at the immediate challenges that leaders in business need to face up to.

Dealing with Debtors

First and most important is running out of cash. Businesses donít fail because they donít make a profit, but because they are unable to pay wages, rent and suppliers when required.

An easy tactic to deploy is to make sure you tell customers when you expect payment from them. Check that you have clear terms and conditions on your invoices that state your payment terms for example, 30 days from the date of invoice.

« ensure you have a system »

Ensure you have a system to chase debtors appropriately if payment has not been received. Dealing with debtors effectively, in some cases can mean the success or failure of a business, particularly for those smaller firms who may be increasingly reliant on individual payments.

Whether dealing with a debtor yourself or whether it is a member of staff, antagonising someone who owes your business money will only be counterproductive. However, if a payment is still not received youíll need to take a firm stance. Sometimes a personal visit may be required to secure payment. Very often this is enough to shame a debtor into giving you a cheque, especially if their own customers may be present when you call.

It can also help if you get to know who actually issues payment in the accounts department, and make a friend of them. This can help you understand how your customerís payments systems work and the relevant cut-off dates. For example, if they pay the month end after receipt of invoice, then make sure your invoices are in on time. Donít give them an excuse to pay late and hold on to your money.

Small businesses often say they do not like chasing up debts for fear that they will not get repeat business. I would say that if someone habitually needs a lot of chasing to pay you, do you actually want to continue doing business with them?

Remember that a large number of small customers may be preferable to a few large clients since, if one does collapse, the loss is likely to be less damaging to you.

Make sure you have a system for checking the credibility of clients. Consider making regular credit checks on your largest clients. Credit agencies will supply this at a cost, but do not ignore gossip and rumour, follow it up to see whether there is any fire to go with that smoke.

Coping with creditors

The other side to this is the payments you make to those to whom you owe money. Check their credit terms to ensure you are not paying too quickly. You may have a policy of settling all invoices in the month they are received, but if a supplierís terms are 45 days after invoice you would be paying too quickly.

The key to cash management though is planning. Nearly all PCs these days come with a spreadsheet programme and the High Street banks all have cash flow software to offer. It may be painful, but regularly reviewing - and monthly is probably the longest period you can afford to leave it - of cash flow is critical to surviving.

If cash flow indicates that you need to delay paying people, communication is the key. Talk to them and explain your position. Let them know when you will be able to pay them. However, do not make promises you cannot keep since you wonít get a second chance to delay payment to them.

What else you can do?

Get advice

planning ...

If you can see you have issues in your business and you arenít sure how to resolve them, get advice before itís too late. Take advantage of any professional advice you can get from accountants, solicitors, banks and do not forget Business Link. If you fear the worst then an Insolvency Practitioner can, perhaps, help you find an escape route. Be aware that Involvency Practitioners are too often brought in too late to save the body so all they can do is put it down as humanely as possible.

Remember that in some circumstances you can find yourself personally liable for company debts so early advice really is a good idea if you can see that cash is running out.

Contingency plan

To some extent you will have had to do this to prepare your cash flow forecasts: plan ahead. Take some time out to think through what you will do if:

  • sales fall by 25%;
  • two major suppliers fail;
  • we have to make a third of our staff redundant;
  • a major supplier raises prices by 20%;
  • you have to move from our present offices to reduce the rent costs;
  • the bank withdraws your overdraft facility.

The list can be daunting but it is better to have planned and not have to do it than be faced with a sudden panic and no idea how to react. As you think through these situations others will occur to you. Try to pick only the most likely ones. It is not too much of a risk that you will be kidnapped by Goblins, for example.

Use your resources

resources ...

Calculate how much stock - if this applicable to your business - you need to hold. Could you order it in ďjust in timeĒ rather than hold if for a time before use. If present suppliers canít guarantee delivery times for this then look at others. If you have stock that has not sold for some time, turn it into cash by having a sale, remember cash is king and unsold stock is cash you do not have.

Review your suppliers to see whether you can get a better deal on price either from them or from alternatives. As mentioned earlier, this should form part of your contingency plan. Consider what would happen if one of your main suppliers went bust. How would you cope? What alternative sources would you have? It could be wise to start looking for an additional supplier now rather than have to find one in a rush later on.

If you have a number of people in your business able to place orders, review your processes to check whether the business could benefit from bulk purchasing if they pooled their orders with one supplier or even all ordered at the same time.

The opportunities

Lastly, a downturn will also bring fresh opportunities as competitors drop out of the market or new, cheaper alternatives appear.

You may be tempted to cut your marketing spend as things get tougher, but perhaps a thorough review of how effectively it is spent would be a better option.

Find new customers

Perhaps targeting a new audience for your products or services rather than continuing to spend on the existing, well saturated one, is an option. It could be worth investing in some market research to identify potential new customers, or you could involve your staff in a competition to see what ideas they might have? This would have the added bonus of opening up communication with them and giving them the security of knowing that they are valued, particularly as they could be worried about the security of their jobs.

« existing customers can be a good source of new ones »

Your existing customers can be a good source of new ones, especially if you really do provide them with an outstanding product and / or service. However, do your financial plans before offering a discount to existing clients if they introduce new business to make sure that it really is profitable for you to offer one.

Networking can also bring you in new business. Are there any businesses that complement yours, for example a florist and a wedding dress maker could refer clients between them without competing with one another?

Maximise on your existing client base

As well as the possibility of existing customers introducing new business to you, consider how you might sell more to them. Could you expand your present product range or should you look to diversify into different areas. Again, some market research into your customers needs might be worthwhile.

Small- and medium-sized enterprises have the advantage of being able to react to market changes faster than large players. Is there an opportunity here perhaps to buy cheaper, end of line or liquidation stocks that may be small in quantity, but high in quality. Remember to check the cash flow forecast before you buy though.

Explore new markets

How about new geographical markets? There may be demand for what you sell overseas, or if you only sell locally from the next county. As mentioned above, a wide customer base will be safer than a few large ones.

« don't let your customers forget about you »

Above all, do not let your customers forget about you. Keep advertising, attend events and doing what you have always done. Cost-efficient communications include e-mail newsletters to clients who subscribe to it and editorial in local papers, newsletters and trade magazines.

This will help reassure your existing clients that you are still in business and even if they donít buy themselves they might recommend someone else. No one likes to deal with a business that looks as if it might imminently cease to trade.

Trust the entrepreneur in you

A final thought is that in hard times most people naturally become more cautious. The bold entrepreneur, however, can take advantage of this by looking at the possible outcomes from a course of action and having weighed up the risks, take the route that offers the best chance of success.

Business Link

Business Link provides the information, advice and support needed to start, maintain and to grow a business. It is backed by the government and dedicated to helping all businesses succeed and can be contacted via:
T: 0800 600 9 006

Tweet article
BW on TwitterBW RSS feed