Succeeding in tough times
Running a successful business is challenging, and most business owners will testify to the fact that long hours, countless sacrifices and many sleepless nights carving out your livelihood are all part of what drives success.
But why do some businesses perform better during tough times than others? When the economic outlook is positive, most businesses thrive, however, as the economic outlook retracts, the risk of your businesses performance going backwards, or even business failure is a real possibility. However, there is good news. The following are some examples of what you can do to give yourself every possibility of not only surviving the tough times, but succeeding through them.
1. Protect and grow your revenue
Contact your key customers and ask them how their business is faring. Meet regularly with high value customers and offer your support. Understanding their situation means you will be better informed about what you can do to assist them and thus protect and potentially grow your business’ revenue. Most businesses fail to truly understand what their customer needs, so your ability to deeply understanding this is a key to protecting your revenue.
Be flexible with your customer’s needs, if they need to pay your invoices by instalments, work with them and have a payment arrangement to allow this. Having some cash flow through the door is better than nothing for months on end, and protects the relationships you have built up with your customers, so when things do turn around for them, they are more likely to continue using you as a supplier or contractor because you helped them through the tough times.
To grow your own revenue, invest in new innovative (low cost) sales strategies, increase (low cost) sales and marketing programs and show leadership by spending more time with your customers and sales team. Bundle together some loss leaders, that is some products/services you are happy to sell for a loss, on the basis that the other bundles product/service produces a good margin. The customer feels like they’re getting a good deal and you continue to invest in an ongoing relationship.
2. Reduce your costs
A reduction in revenue and/or profit means you will need to examine your cost structure to maintain your profitability. Be prepared to make some hard decisions. A low fixed and high variable cost structure is ideal for doing business in tough times.
Non Trading Costs
Try to reduce or eliminate non trading costs. For example, examine wage/productivity reports and restructure non productive roles or encourage multi-skilling to maximise your employee return per hour. Staff reduction is not necessarily a given in tough times! Have someone take over your daily operating activities for example, will free up your time to look at developing lead opportunities, or getting out to your existing customers and understanding what their needs are. You need to be driving your revenue growth, and redirecting some wages costs to cover you is an enabler for this to occur.
Examine all your expenses and investigate ways to transfer your business’s fixed costs to variable costs. Outsourcing is a variable cost strategy. There are plenty of opportunities to engage external consultants to examine these, from a broker to look at your loan/finance repayments, to an insurance broker, or electricity comparison consultant to make sure you’re getting the best deal you possibly can.
3. Collect your cash
Collecting cash from your customers may become more difficult. Watch your cash flow. Consider amending your policies for debtor collection and stock management. Don’t leave the hard phone call until too late. If you have 30 day terms for payment, don’t wait until 60 days to send a gentle reminder. A polite phone call a week before the due date reminding them of the due date is a great opportunity to check in with your customer and see whether there is anything else you can help them with.
Place tighter limits on the amount of credit you extend to your customers. If you have exposure to large customers, seek assurances and guarantees on how they will pay their account. Enter repayment schedules and offer ‘cash only’ terms until your customer accounts are in order. If the decision is between being flexible and survival, there is really only one choice. However, as previously stated, work with your valued customers to ensure their orders can be accommodated, for example payment instalments.
Don’t over invest in stock. Place strict controls over stock ordering and management. If customer sales slowdown so should your ordering. Work with your suppliers to manage your delivery times, perhaps implement a just-in-time inventory system, whereby you only purchase goods when you have a sale to offset it. It may delay the sale delivery, but means you don’t have to invest heavily in stock to have sitting in your warehouse for longer than necessary.
3. Check in regularly with your advisor
In tough times, it is common for business owners to want to save costs by trying to go it alone. All too often, we as advisors see clients when it’s too late. Engaging with your advisor more frequently throughout the tough times may enables you to learn from their experiences and advice and set you apart from your competitors. Setting yourself benchmarks in conjunction with your advisors and then regularly checking in against those benchmarks is a great way to keep striving for success during the tough times.
By engaging more frequently with your advisors, you will be able to set up appropriate structures or planning opportunities, so when the economic outlook again turns back into positive, you will be best positioned to take advantage of that.
These are just 4 examples of what you can do to position yourself well to be successful during the tough times, however it’s important to acknowledge that when tough times come about, appropriate risk analysis needs to be undertaken to ensure your business is not left open for a negative impact of business risks occurring.
Minimise your risks
It is important you move quickly to minimise your business risk. The FIRST STEP is to re-examine or prepare a new Business Plan to review and assess your current situation and plan the future. When preparing your Business Plan obtain independent and objective advice. Your Accountant or Financial Planner is best positioned to provide this advice. Seeking advice early will mean the difference between your business thriving or simply surviving.
Business that succeed through tough times are ones that have considered their industry, focused on their customers and managed their risks appropriately with the right advice.
At Thnk Advisory, we are passionate about working with businesses to ensure their ongoing business objectives are met. We can work with you to help you achieve your business goals through a structures process of collaboration, and open and honest communication. Please call us to find out more.