There may be trouble ahead.
But forewarned is forearmed and there is plenty you can do to batten down the hatches and prepare your business for a recession.
And be ready to take advantage of the better days that will follow.
Your bookkeeping must be up to date and stay that way so you know exactly where you are and you minimise the surprises that will surely come your way.
Make sure you understand what the numbers are telling you and take action based on this information.
There are two forecasts you need:
In your profit forecast be realistic about future sales and be prepared that you’ll lose some customers and that some contracts and projects may be postponed or cancelled – sometimes at the last minute.
On the cost side of your profit forecast identify which costs you can reduce or cut completely and get on with it. People and premises are usually the areas that will yield the biggest savings.
It’s often best to cut hard and cut early.
As for cashflow – go backwards before you go forwards. Get a simple cashflow model working by modelling the last six months of actual cashflows and then, using your profit forecast and your up to date bookkeeping information, model the next six months or so.
In both forecasts – be realistic and don’t forecast too far into the future.
And keep updating the forecasts because circumstances will change.
If you’re not on top of credit control then get on top of credit control now, and stay there. Make sure you have an aged debtors list to review at least once a week.
If you can, set up your customers to pay by direct debit. Be wary of any that won’t sign up as this could be a sign that they are going to be slow and payers.
Difficult customers? You might be better off without them.
Get on the phone and, if you have to, go out and visit customers that owe you money.
Don’t rely on automated messages and simply sending statements from your software. By all means set them up so there is a steady trickle of credit control reminders going out to customers but nothing beats talking to customers if you want to get paid.
Take a thorough look at workflows and ask if they can be made more efficient and, indeed, if they need to be done at all. Can you redesign workflows and processes to make them simpler and cheaper?
Counter-intuitively, is now the time to invest in new software, automation and other capital items to improve productivity?
Look closely at costs of sales and margins. If sales are likely to reduce in the coming months then are there deals to be done with key suppliers, who want to keep your business as a customer, which will lower your costs of sale, meaning you make more money from each sale you do make?
Finally, run through all of the business overheads and see which can be cut.
Cost cutting doesn’t need to be “all or nothing”. It may be that all colleagues share the pain with a pay cut across the board rather than some people lose their jobs but not others.
It shouldn’t take the threat of a recession to prompt any business to build up a cash reserve, there should already be funds in place. But, in the real world, that may not be the case.
Charities and other not-for-profit organisations are compelled to build up reserves that amount to, say, three or six months’ of operating costs. If charities can do it, why not you?
Building up a cash reserve now means you have to work harder on your cashflow and in practical terms, if you don’t already operate two bank accounts, then open a second account now.
=> Why two bank accounts are better than one
Go right back to basics – the four “P”s of marketing:
It’s important to be positive with marketing and recognise there will be opportunities in your market. Simply put – not everyone will get through to the other side.
Be different and be seen to be different. Innovate with products and services and make sure you communicate effectively to customers and prospects.
And if opportunities arise then try to capture market share.
In hard times it pays to have strong relationships with customers, suppliers, colleagues and other stakeholders.
Provide great service and clear communications and perhaps now would be a good time to set up a customer loyalty scheme that rewards repeat business.
Continue to build close relationships with customers (not forgetting to jettison any that are not profitable) and, provided your cashflow supports it, pay everyone consistently on time.
In fact, if you can consistently pay your suppliers on time then use this as a negotiating tool to agree lower prices.
There seems no doubt that the economic headwinds are blowing stronger and running your business will become more difficult.
Be prepared. Take action sooner rather than later and come through it stronger than before!
Michael
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