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Advice from Outside the Square

Recession Proof Your Business

Recession Proof Your Business

sorry closedIs this possible – to recession-proof your business?  Well no, probably not despite the wealth of articles about how to do so appearing on the internet (about 614,000 hits on Google).

However, what is possible is to secure your business as much as is possible by following a series of simple and common sense business strategies.  These strategies are no different from strategies you should employ under normal circumstances, but which application is much more acute in today’s economic climate, and with a different emphasis required.  Sadly when times are good, businesses allow themselves to get “fat” and some of these every-day disciplines are allowed to slacken.

The strategies can be grouped into defensive and offensive strategies.  As you look at your business performance it is likely that you will find profit performance heading south, and with the economy looking the way it is, it is difficult not to panic and begin to tighten all the hatches.  However you can tighten too much, to the extent that your business finds it difficult to operate normally.  Hence, while it is natural to concentrate on the defensive strategies such as cutting costs, it is important to keep in mind the offensive strategies – those that your business should take to ensure that you are the one in your industry that keeps selling when others are closing down.

Let us deal with the defensive strategies first and get them out of the way.  There are six simple strategies that you need to look at and with some discipline, enforce them.  These are:

1. Control your inventory

2. Retain your cash

3. Keep your receivables flowing

4. Cut your costs

5. Review your borrowing

6. Increase efficiency

First, control your inventory.  If you do not know, find out immediately which lines of stock turn over quickly.  If you do not already know find out immediately the number of days’ each lime of stock takes to turn over.  Calculate economic order quantities (EOQ) for each line of stock – this is a function of cost, time taken to receive an order from your suppliers and the time taken to turn over stock in hand.  Ensure you are only carrying EOQ’s in hand as otherwise you may be sitting on your profits.

Second, retain your cash.  Ever heard the phrase “cash is king”?  Where assets such as stock and capital growth investments or even plant and equipment may have been good investments in times of growth, in times of recessionary influences, cash in hand is useful to take advantage of opportunities, save costs and make rainy day decisions.  The other 5 defensive strategies will help you retain cash, however the most important strategy is to keep focus on cash and cash transactions – how much does stock cost? Can you find a cheaper supply? Are discounts available? Are you carrying excess plant and equipment that can be sold?

Third, keep the receivables flowing.  Ensure that you are in constant communication with your customers, not only for offensive purposes as discussed later but certainly to be aware of their trading conditions. Do not get caught out by customers closing down while owing you money.  Review your credit policies and ensure that they are followed.  As soon as debts become overdue, call them and find out why.  Offer discounts for early payment (without allowing margins to suffer significantly).  Be prepared to cut customers who are using you as their bank.

Fourth, cut your costs.  Review all your expenditures and ask yourself if any savings can be made.  However a word of caution here!  The answer must be in the light of maintaining trading positions.  It may be clear that you can save costs by reducing telephone lines from 6 to 4, but if your business needs constant telephone contact with customers and all 6 lines are constantly lit up, reducing this cost merely restricts your trading model.

Fifth, review your borrowing arrangements.  Most businesses have a medium term relationship with their bankers and financiers, that is, they arrange a loan, lease or hire purchase contract and then fail to communicate with their bank until it is time to renegotiate.  Instead, you must keep your lines of communications with banks open.  Ensure they receive financial reports from you on time, develop a relationship with your bank manager so that they know how your business is travelling.  At the same time, review your arrangements – they may have been made some years ago when interest rates were high.  See if borrowings can be refinanced or renegotiated.

Finally, the sixth defensive strategy is to increase efficiency.  When time are good this is usually allowed to slip, particularly as too few businesses measure efficiency.  How do you measure the efficiency of a retail business or a medical practice?  Surely it is much easier to measure efficiency in a manufacturing business or a law firm that keeps time sheets?  It may be easier but it is not impossible to measure efficiency of any business.  You can measure the efficiency of staff, of processes, of equipment.  In a retail business how many customers do individuals serve a day?  How long is a consult in a medical practice?  How long does it take you to receive an order and send it out?

I started this article by saying that there are both defensive and offensive strategies that you need to look at.  While we have dealt with defensive strategies first to get them out of the way, it is not defence that will create a strong impression in the minds of the people you need to help you survive the recession – your customers.  In order to clearly put your business in their minds and therefore seek their support through steady sales, you have to go on the offensive.

Offensive strategies need not be costly, which is the fear of any business person in a defensive mind-set.  In fact all the offensive strategies discussed here can be implemented without increased cost, by focusing on what you already do but doing it better, or by switching unproductive spending towards outcome-focused expenditure.

There are 6 offensive strategies you cannot do without if you want to survive the recession, and not just survive it but exit in a state ready to grow from the first opportunity:-

1. Increase marketing efforts

2. Focus on customer service

3. Diversify

4. Invest in winning employees

5. Innovate, innovate, innovate

6. Create partnerships

The first offensive strategy is to increase, yes increase your marketing efforts.  The worst possible thing you can do when there is increasing competition for your customer’s dollar is to reduce marketing.  As you reduce marketing your market forgets you.  And be quite aware, marketing is not “advertising”!  Low cost or no cost ways to increase marketing may involve “inbound marketing” on the web through your website. Build a better website, increase search engine optimisation, use social networking sites such as You Tube and Facebook.  One of the most effective means of cost-effective marketing is simply doing what you do well but doing it even better, and ensuring customer service is tuned to 100%.

This leads us to the second offensive strategy of focusing on customer service. Do not allow your womencustomer to forget you.  When you are face to face, smile, ensure you are listening to their needs, thank them as they leave whether or not they have bought something.  Keep up contact with them, call them after they have bought something to see if they are happy with the product and the service, offer after sales service and “frequent buyer” programs.  Give them value-added service without it costing you much more – faster delivery times, wider selections.

The third offensive strategy is to look to diversify.  Once you have measured your stock turn  (defensive strategy number 1) look to increase products and services with selections that meet real needs.  Firstly, see if any products or services related to the ones you sell now are more appropriate in tighter economic times – appliances that cost less to run, financial reviews by investment advisors, provide “packaged” services.  Second, look at products and services that competitors are exiting from, especially where these leave demand unsatisfied.

The fourth offensive strategy is to invest in winning employees.  While it is true that at all times we should look after our best employees, when we are busy and our sales is going through the roof, it is easy to allow the odd non-perfomer to slip through simply because we need the extra hands.  Some of these non-performers may have been weeded out as you went through defensive strategies to increase efficiency and cut costs, but you now need to turn your attention to the winning members of the team.  In many businesses, these are your first contact with the customer.  You need to recognise and reward winners to ensure they stay with you, keep performing, and where necessary, pick up some of the slack from the losers.

Innovation is the fifth offensive strategy, and so important it has to be named three times!  As much as marketing and customer service, innovation will keep you in the minds of the customers.  Innovation may take the form of innovative customer service as well as in products and services. Use the latest technology to get your services or goods to market faster; use technology to keep in touch with customers through e-mails and blogs; use innovation to improve processes.

Finally the sixth offensive strategy is to create partnerships.  As businesses wind down, supporting one another is a good way to keep head and shoulders above the competition.  Offer cross-selling with related or nearby businesses.  For example, get together with the local restaurant and offer a dinner for two for every purchase above $200 (and the restaurant can offer a small gift collectible from your store for every bill above $200).  On the other hand if you are a clothing retailer you might get together with a local shoe shop and offer discounts for a matching pair of shoes (and the shoe shop can return the same discount offer).

So, can you recession-proof your business? There is no guaranteed method but the implementation of simple and low cost strategies can increase your chances of survival, and more importantly ensure that when the recession ends, which it certainly will, you have not only survived but are ready to leap ahead.

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