By Brian Chernett
Whether we are heading for a recession is still debateable, though key people ‘in the know’, for example the Governor of the Bank of England, Mervyn King, seem to suggest it is now more likely than not. By the time we reach the two quarters of negative growth that is the official signal for a recession, it may be too late to take action to mitigate its effect on your business. Now is the time to take some sensible actions that will equip your business better for harder times ahead.
1) Go for market share now
In a shrinking market, it pays to be one of the market leaders. There is currently a debate raging in the business press about whether you can market your way through a recession. I believe you can but you must also SELL your way through. Now is the time to go for more business.
2) Carry no Passengers
Take a look at your team. Are all of them operating at a 10 (out of 10)? If not, now is the time to challenge them to step up their game. Approach the problem empathetically but make sure all of your team know that they have to pay their way in order to stay on the team.
3) Become lean and mean
Look at every part of business and ensure maximum efficiency. In good times we sometimes allow a little fat to develop in the business. When facing tougher times, that fat needs to go. How do you know what is fat and what is not? Ask the question, if we were not doing this would the profitability of the company suffer — or benefit?
4) Become paranoid about cash
The ‘credit crunch’ tells us all we need to know here. When credit is tending to be more difficult to find and more expensive, having cash puts your business in a strong position, especially when there are opportunities to grow by acquisition or increased market share. Cash in a downturn is a potent competitive weapon.
5) Reduce stock
Stock ties up your cash. Think of it as large rolls of banknotes sitting on your stockroom or store shelves. Too little stock can inhibit sales growth, too much stock simply inhibits growth. Take the time to understand your stockholding needs and then use aggressive promotions to turn the excess into cash.
6) Reduce debtors
We all know of customers who demand long payment periods and then take even long to pay. We all have customers who would pay much quicker if we invoiced promptly and followed them up. You have a right to be paid on time. Exercise it. Aim to reduce debtor days steadily. Many businesses now operate on payment with order — might that work for you?
7) Negotiate better credit terms
It may seem paradoxical, but it is also sensible to ensure that you pay your creditors according to their credit terms. Do you pay invoices on presentation when there is a 28 day payment period? Examine the key deals that your business has in place — the 20% of deals that represent 80% of your payments and get creative with them. Can you extend your credit window or negotiate a discount for prompt payment?
8) Lead from the front
Action 2 — Carry No Passengers applies to the Chief Executive. Make sure you are setting the example that your team would expect. You are very visible whether you realise it or not, so focus on building the business and ensure that your performance ‘goes to 11’.
9) Get stuck in
There is a time and a place for investigations and feasibility studies, but it is probably not now. Actions taken in the business in the current circumstances have to have a bottom line effect.
10) Reduce every expense you can
Some business expenses are essential, but they are usually fewer than you think. A focus on reducing or avoiding expenses might include reducing journeys (especially overseas), limiting entertainment budgets, retaining staff to avoid recruitment costs, delaying or phasing in larger IT or buildings projects. The question (again) is around the effect on the bottom line if the expense is incurred later or not at all.
11) Ensure you have Mentor or Coach
A mentor with experience of running a business through a downturn will prove to be a valuable advisor in the coming months. Decisions may need to be taken that test your ability and determination. Having impartial and expert advice may make the process less stressful and improve the chances of success. Organisations like the Academy for Chief Executives will be able to help you to find the right mentor for your needs.
12) Ensure you are better and faster than your competition
Although this point may seem to suggest having better systems (and it does), it is really about how they are used. In tough times, winning more business, servicing it profitably and providing the customer with excellent service so they return for more are the critical areas. Making that happen demands high quality leadership AND management. The more the business recognises that it is a single team dedicated to delivering exceptional customer experiences, the better the performance and the profit will be.
In good market conditions it is possible to be an average company and still succeed. In adverse markets, only the above average will prosper. The average and below average will fail, which has the effect of raising the average. Only continuously improving performance will ensue that you emerge from the downturn stronger than you went in.