Managing a business is demanding at the best of times. When times get tough, planning and forecasting is more difficult. This article outlines how to manage a business when economic conditions are pressured and how to ensure your business runs efficiently. We provides advice on how to assess performance, financial considerations and how to implement a risk strategy.
Your business health check
The first step to safeguarding it is to carry out a 'health check' to identify your weaknesses and threats, as well as your strengths and opportunities. This is called a ‘SWOT’ test. Consider internal and external features such as the environment, technological changes, employment needs, the organisational strategy and the economy.
Minimise cost, maximise efficiency
Minimising outgoings becomes critical when market conditions are tough. There should be a good business reason for every penny your business spends. Assess your fixed costs (often called overheads), which you pay for regardless of how much you produce or sell. They include rent, rates and wages. Many businesses fail to realise that savings can sometimes be made on these.
Try to make savings on variable costs (those linked to how much you produce or sell such as materials, packaging, overtime and transport costs).
Keep your cash flow healthy
You need to be able to anticipate cash flow problems. Forecasts showing likely sales, profit and loss, enable you to identify when additional funds might be required. Then you have time to make necessary provisions, for example, by arranging a bank loan or overdraft extension to get you through periods of difficulty.
You need to know how much money your business has in the bank, how much it owes and how much it is owed.
Tasks that help to maintain a healthy cash flow include: reducing stock, minimising costs, maximising sales volume and margins, avoiding overtrading (i.e. taking on work you cannot fulfil to price), recovering debt through invoice discounting and factoring, renegotiating credit arrangements and selling off assets.
Limit risks
Risks are factors that could impact drastically on your business. Risks can be large or small and the result of external or internal factors. They can be sector-specific and/or linked to wider economic considerations.
Most small businesses are faced with the risk of losing customers and/or failing to attract new ones. Risks increase in times of economic upheaval. Increased competition is another risk. Inflation burdens businesses with additional costs. Poor cash flow and lack of access to credit can prove fatal, while failure to anticipate problems and an unwillingness or inability to evolve are common sources of risk.
A SWOT analysis is an effective way to assess risk. While identifying your strengths enables you to recognise opportunities open to your business, potential threats can be uncovered by assessing your weaknesses.
Develop a survival strategy
Revisit your business plan and modify goals so that you are able to continue improving. If necessary, make the steps smaller so that all involved still feel like there is progress, even if that is slower than before. Before setting new targets, consider such factors as recent trading results and current market research/knowledge. Your business development strategies will also have to change. If your strategies are to succeed, your goals must be realistic.
It pays to consider what you would do should certain worst-case scenarios arise, such as losing a major client. Effective planning is the most efficient way to deal with such contingencies swiftly and decisively should they arise. Ask yourself some key "what if?" questions. You also need to consider potential opportunities that could arise, for example, if one of your competitors goes out of business.
You must have a clear strategy for looking after key customers and growing relationships with them, if you are to retain them. Keeping hold of existing customers is much cheaper than attracting new ones.
Motivation
Consider the effect of tough or uncertain market conditions on your employees. Morale can sink quickly and feelings of anxiety can spread when people elsewhere are losing their jobs. As well as rewarding and recognising their achievements, you need to set targets and monitor performance.
Checklist of key tasks
Net Lawman tips for GEC survival:
Assess the health of your business;
Minimise your fixed and variable costs;
Remain aware of your cash position at all times;
Tighten up your credit control and maintain a healthy cash flow;
Check how many days elapse before a customer pays you, and act quickly and decisively when chasing debts;
Develop strategies to manage risks;
Revisit your business plan and development strategy;
Keep track of the time it takes for you to pay your customers;
Consider worst-case scenarios and know exactly what to do should your business experience serious financial problems;
Inspire confidence and keep your employees focused and motivated;
Review your bank charges quarterly;
Maintain good lines of communication with your accountant and bank.
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