It is a difficult economic environment at the moment for new and budding business ventures, although by decreasing expenses and becoming more disciplined, start up business ventures can thrive.
This article shares six rules for surviving in a downturn.
1. Accept that cash is essential
Look after your money – when you’re short on cash and cannot access any more credit, you are theoretically insolvent and heading for ruin. Having little or no funds is what nearly all business advisors & finance professionals recognise as being the primary killer why the majority of business ventures go under. I propose to my clients that they prepare a 13 week cash flow forecast that is not taken from profit and loss figures but from a thorough comprehension of their cash receipts and disbursements. Examine any negative trends to your cash position to ensure that you have an early warning system to identify future “tough” times.
2. Collect your cash with an obsession
Manage any unpaid invoices firmly assertively. Many companies are holding on to their money for longer periods than ever before, resulting in delayed payments. These tardy settlements are having a knock-on consequence throughout the wider business and commercial environment. Money due to you may escalate and some of your customers may turn out to be victims of this cycle too. Do not go on giving credit – you are not a banker! Review your terms and conditions and consider introducing late payment penalties and interest to your bill.
Do you need to send invoices by mail? The internet is far cheaper and often overcomes the “I didn’t receive your invoice” excuse from your customers.
3. Don’t depend on everybody
Maintain a close eye on your service providers and suppliers, and have alternatives you can call upon. During a slump, a few of your suppliers could turn out to be in financial difficulty also, and you would be advised to consider other sources any vital inputs.
Work out which key supliers you could not do without. If you source a specific “widget” for your goods, what would happen if your supplier went “belly up”. I recently consulted to a large electrical distributor in Auckland which sourced approximately 40% of its materials from one manufacturer. Guess what? The manufacturer went into receivership, without any warning signs, and my client lost a lot of income and saw an exodus of customers to the competition! They did not have a plan B.
4. Look at your expenses systematically
You may anticipate and reliably predict your outgoings, but it’s not as easy to project revenue. Search for ways to restrict overheads. When the economy is flourishing, businesses have a tendency to increase the number of employees they hire and incur expenses that are discretionary but pleasant to have…such as entertainment, fancy office furniture, etc. But they aren’t critical to the business’ success. It’s probably time to have a quick peek at those.
Maintain focus on your primary markets and spend cash only in these areas. Stay away from putting money and time into areas which you have confirmed as less valuable. A lot of business ventures get underway by slashing promotion & marketing expenses. This may become a mistake. Marketing should be an ongoing exercise.
Instead of slashing these budgets, go through the marketing methods that you’re employing. Are there any other efficient channels to market or sell to? Is your existing approach producing the right outcomes? If they do not, change your efforts to create the best attainable results you can.
5. Do not overlook your lenders – communicate, communicate, communicate!
If you are using debt to finance your business, remain in communication with your creditors. Do not delay until it’s too late before speaking with them. When you find yourself in a difficult position and have not provided them with any warnings your position with them might become more complicated. Maintain constant dialogue – it will assist you if you ever need to renegotiate terms.
I come across several people who feel a massive amount of strain lifted off their shoulders after we’ve arranged improved terms with their creditors. Speak to your bank, credit card company and finance company to arrange a brief repayment holiday, ask them to suspend interest or even get them to write off some of the balance. You may be surprised with the outcome!
6. Profit – companies survive on the surpluses they make
Do not agonise about generating income. Focus more about generating surpluses. Ensure you understand what drives profitability in your company. To drive demand, you may need to become creative with your product or service range, and you certainly don’t want to promote something that is actually unprofitable in a recession. Look at your 3 biggest expenses and work out if you can trim them without adversely affecting your customers.
Think about diversifying to seize advantage of potential opportunities. For example if you own a lawn mowing business, could you offer a garden maintenance service? You already have a truck and the potential clients at your fingertips.
It’s a sad but obvious fact that other peoples’ weaknesses and insecurity may be to your benefit. You never know – you could identify another profitable market.