Those business owners with foresight are undertaking “risk assessments” on all aspects of their companies – a sort of SWOT analysis to identify what might threaten their very existence and then taking steps to minimise risks.
One of the characteristics of recession is that it shakes out poorly managed businesses. It’s the commercial equivalent of Survival of the fittest. Regrettably it often takes many well managed companies too, which are simply victims of unforeseen events or those events which are outside of their control.
Life in industry is tough and is going to be tough for some time. We have all become familiar with Health & Safety requirements and procedures. Many of us have cursed them and the red tape associated with them but despite that have to admit that they have prevented accidents and saved lives.
In the past I have met many business owners who, even in difficult times, have been obsessed with matters such as tax efficiency when in fact as a matter of priority they should have been focussing on cash flow and survival. Those business owners with foresight are undertaking “risk assessments” on all aspects of their companies – a sort of SWOT analysis to identify what might threaten their very existence and then taking steps to minimise risks.
As the manager of any size business, what can you do?
The starting point is having quality management information – an essential management tool. Scientia potentia est – “knowledge is power“. Trading blindly without such information is a high risk strategy.
Examples of some of the many risks which are quite easy to identify –
- heavy reliance on one customer or a very small number of major customers
- one owner or key staff member with no succession in place
- dependence on one supplier
- a single source of credit
- exposure to currency or interest rate fluctuations
Any exceptional dependence results in vulnerability. There isn’t always a quick fix but planning to spread concentrations, succession planning and using multiple credit lines and hedging products can help.
It is always worth considering outsourcing – either outsourcing current operations or bringing in-house services which are currently outsourced. If your management information is such that it can separate various operations into cost centres this is a huge benefit. Some areas which are worthy of consideration may be:
- Transport and haulage: This often evolves, perhaps starting with an individual vehicle and growing into a small fleet to deliver your products. If your vehicles are either standing idle for prolonged periods or driving around empty it may be worth looking at outsourcing. Another alternative may be to hive the haulage into a separate business and seek additional customers to ensure the fleet is profitable.
- Credit control: Many businesses are either not very efficient at collecting money or have in-house credit controllers. If you happen to be looking for an additional line of credit it may be worth considering factoring. A good factoring company will have an efficient credit control function. The saving in paying a credit controller will off-set the cost of the factoring facility.
- Marketing: This is important to any business. However, smaller/medium sized companies who cannot justify the costs often ignore it completely, waiting for the phone to ring. If your business is not actively marketing rest assured that your competitors will be.
- Project Management: Often a false economy to undertake in-house. What is frequently overlooked is the lost production of the member of staff allocated to the temporary role and the fact that professional project managers are generally more effective. If lost production isn’t an issue …do you really need that member of staff?
Outsourcing isn’t always the right option – each business is different. There may be functions which you currently outsource where you could add value by bringing in-house. If, for example, you find your business has surplus clerical staffing capacity, rather than consider redundancies it may be financially feasible to bring certain operations in-house, eg Payroll processing. Inexpensive, off-the-shelf software is available which once set up makes processing payroll simple.