Phil MeekinView Profile
One of the characteristics of recession is that it filters out poorly managed businesses. It’s the commercial equivalent of Survival of the fittest. Unfortunately, it often closes many well-managed companies too, who are simply victims of unforeseen circumstances or events outside of their control.
Even in difficult times, business owners can still be obsessed with matters such as tax efficiency, sales and profits. However, when times are tough it’s vital to prioritise cash flow and survival.
Business owners with foresight conduct will look to carry out a risk assessment on all aspects of their companies. A sort of S.W.O.T analysis to identify what might threaten their existence. Owners should also look at their cash flow forecast and see how a recession could affect their business. Adjusting a cash flow forecast should be a constant process, with the idea being that you’re always operating within your means.
What can you do as a manager?
Unless you can magically increase sales, which during a recession is even more difficult, the best starting point is looking at your business processes and seeing what can be improved.
Examples of easily identifiable risks:
- Heavy reliance on one customer or a small number of customers.
- Having one owner or key staff member with no succession in place.
- Dependence on one supplier.
- A single source of credit.
- Vulnerability to currency or fluctuations in interest rates.
Any dependence of this kind can result in vulnerability if that dependency is removed. There isn’t always a quick fix, but planning to spread concentrations, succession planning and using multiple credit lines and hedging products can help.
Outsourcing and in-house services
Depending on how much they currently cost, and how much you’d save, it is always worth considering outsourcing your operations or bringing services which you currently outsource, back in-house.
If you can separate your operations into cost centres, this can be a huge benefit. Some areas worth considering outsourcing include:
- Transport and haulage: Your need for vehicles often changes with the business’ size. Companies can start with an individual vehicle and grow into a small fleet to deliver products. If your vehicles are standing idle for prolonged periods or driving around empty, it may be worth looking at outsourcing. Another alternative may be to divide the haulage into a separate business and seek additional customers to ensure the fleet is profitable.
- Credit control: Many businesses are 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 amount saved in paying a credit controller will off-set the cost of the factoring facility.
- Marketing: Today, marketing is essential to any business. However, smaller and 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, your competitors will be. Fortunately, many marketing companies exist that offer services to smaller firms, though it’s worth shopping around before parting with your funds.
- Project management: Project management is often a false economy to undertake in-house. The lost production from the member of staff allocated to the temporary role is often overlooked, and professional project managers are generally more effective. If lost production isn’t an issue, do you 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 staff, rather than consider redundancies, it may be financially feasible to bring certain operations in-house, such as payroll processing. Inexpensive, off-the-shelf software is available which, once set up, makes processing payroll simple.
If you’re already struggling through the tough times, aside from sourcing additional finance, there are payment plans available to help you deal with potential cash flow troubles. Formal plans such as a Creditors Voluntary Arrangement, allow you to pool all of your creditors into one pot and then repay them over a set period of time. It can ease some of the cash flow pressure and give you a better understanding of your incomings and outgoings each month.
No business is exempt from running into trouble, but you can minimise its impact on your company by taking the necessary steps to prepare for any unforeseen circumstances. Carrying out a risk assessment can put you on the right track to spotting potential pitfalls in your business. You can also look into either outsourcing certain operations and reduce the amount of time taken up by them. Alternatively, you can look at bringing them back in-house if you can reduce the cost of outsourcing by doing so.