How To Survive Tough Times
Clients are often asking us how they can prepare for what Trevor Manuel called “the economic tsunami”. Our advice would be to PLAN, PLAN, PLAN to include the following business critical areas in your strategic planning:
As you review these areas always bear in mind the 80:20 rule of thumb. Generally 80% of complaints come from 20% of customers; 80% of your profit comes from 20% of your products/customers; 80% of management time is spent on 20% of your staff… By concentrating on your profit leaders and star performers you can cut costs by not concentrating on the unprofitable areas.
Put cash flow and financing on the agenda of every management meeting. Monitor your management accounts regularly to catch trends early and regularly update your cash-flow forecasts. Cash flow means sanity, so if you need to choose between profitability and cash flow, choose cash flow.
The purpose of business is to make money and we need to appreciate that the gross margin value of turnover is the most important operating business variable and not turnover itself.
Focus on margins and cut costs, not sales prices. A price increase is the most powerful strategy to improve the bottom line but in tough times you may not easily reap the rewards of a price increase. Rather you need to reduce your costs to improve the bottom line.
You have much more control over the gross margin than over turnover: buy cheaper materials, reduce sales discounts and change your sales mix to focus on higher margin items.
When there is pressure to stay competitive, you must be certain that your customers are getting what they want and need. Maintain your personal touch and do not be afraid to lose customers that do not pay.
Negotiate a better deal with your suppliers where possible. Review debtors lists and chase overdue accounts. Closely control your stock levels and review your inventory insurance as theft increases in a downturn.
Consider debt consolidation to remove the stress of managing several loans and debts. By rolling all your debts into a single, affordable loan, you could reduce your interest costs and save money on your monthly repayments.
If you cut advertising spend, you may lose customers to your competition. Successful businesses increase advertising in a recession to win customers away from their competition.
Consider creative ways to incentivise your top performers, such as flexi-time and work-from-home options. If you need to reduce staff costs, dismiss low quality performers who use a disproportionate amount of managers’ time, aggravate customers, squash morale, and drive away high quality customers.
Review and evaluate your company’s internal operations, strategic plans, procedures, process flows, organisational structure and policies to reduce costs and duplication of work and increase productivity.
In tough times theft and fraud increases, insurance companies analyse claims more closely and of course the directors and shareholders need more protection than ever. Now is the time to have a total portfolio review as you may be able to save money and have a more effective portfolio of cover. (You should be looking at cover like Tax Enquiry Insurance and Owners and Director’s Insurance because at this time you do not need sudden unbudgeted large expenses!)
Tough times are often as much an opportunity as they are a challenge! You can take the time to analyse your business and turn it into a more efficient business unit, not only increasing your profit but as you out-survive your competitors, you will be ready to take advantage of the opportunities presented when the economy turns.
As a practice we have many tools in place to help you to identify these opportunities and would welcome the opportunity to help you as part of your Business Planning Team!
All material subject to our Legal Disclaimers.