By Stuar Anderson Operations Director at Pegasus Software
There is no doubt that the recent financial crisis has affected business on a global scale, but the worst is now over and confidence is gradually returning. The economy is stabilising and although no one is predicting a rapid rebound, in the SME sector there are positive signs of recovery and a return of optimism.
In a recent survey by Business Link South East*, 48% of businesses believe their turnover will increase in 2010, with up to 18% expecting to take on additional staff. With regard to future expansion, over half (52%) intend to expand either slightly or significantly in the medium to long term.
The survey also looks at the challenges facing SMEs in preparing for the recovery, and according to its respondents, these are:
Finding new clients and markets: 71%
Controlling costs: 56%
Keeping up with technology: 48%
Complying with or understanding legislation/regulations: 47%
Ensuring prompt payment from customers: 46%
Cash is king
During a recession, companies focus on maximising their cash position by reducing debtor days, stock and expenses. Clever SMEs have used the recession to cut down inventories to the lowest level possible, in a bid to save money.
But whilst cashflow is the core problem for SMEs in a recession, it is actually squeezed even harder in the early stages of a recovery. When the economy picks up and orders flow in, these SMEs need to invest in fresh supplies to meet the increased demand, be it in stock or staff; and because of the delay in subsequently seeing the revenue from these efforts, some companies could end up dangerously short of cash. So beware: try to maintain a balance between cutbacks and cash reserves as this will help sustain the business, ensure it is fighting fit once the recession is over, and fund future expansion.
A lot of things have changed during the last 18 months. Often organisations have been so focused on survival that they can’t remember the last time the business was analysed objectively. Understanding strengths, weaknesses, opportunities and threats is key. Any changes made to get through the recession have to be reviewed, as well as those business model changes made within customers and competitors.
Update your business plan
Having created a full picture, business plans can be adapted to take advantage of the recovery in areas such as expansion, new product development and new market opportunities. A key concern for many SMEs is building in enough stamina to see the UK economy recover to pre-recession levels. In a recent survey for the Guardian, 75.5% of respondents thought this would take us until 2012 and beyond. So a business plan needs to factor this in to ensure success.
It’s integral not to lose the focus and discipline learned regarding business efficiencies, but it is important to look at expansion and innovation as the economy stabilises and grows. Could this be a good time to purchase a struggling competitor and bring economies of scale into play?
Update your marketing plan
Marketing budgets are usually the first to come under pressure in an economic downturn, but as the economy improves the marketing plan should be altered to help the business grow.
The plan should concentrate on the high margin, cash rich products and each activity should be measured and analysed to ensure it is creating opportunities and sales.
Invest in staff
A recovering economy means a more competitive environment and a greater investment in staff. Staff numbers may have reduced to re-align the business during tough times but now, an opportunity exists, not only to invest in the current workforce through training and increased rewards, but also to employ new staff as there are a lot of quality candidates on the market or looking to move to a more secure environment.
There is currently a range of government assistance to help grow your workforce. UK employers are expecting to hire thousands of apprentices in 2010 and the government is encouraging all businesses to take up the new Apprentice Grant for Employers (AGE) scheme offering a £2,500 grant for each 16 or 17-year-old apprentice taken on. This has led to 239,900 people starting Apprenticeships, and businesses of all sizes are reaping the rewards of having a highly skilled workforce.
It’s a difficult thing to do when concerned with the day-to-day running of your business, but it is vital to take time out to go through the areas outlined above and take appropriate action where required. Economic recovery is going to return slowly, but looking at all aspects of what you do and how, and planning your future direction now, will put you in the best position possible to take advantage of a recovering market.
The Fit for Business Health Check
Looking under the bonnet of business processes and practices can provide a full understanding of the health of a company, in order to remain flexible and able to adapt to change. So what are the key areas which should be examined in order to prepare to take full advantage of the economic recovery?
Do you know which of your products or services are most profitable?
Do you know what product lines your customers are buying?
Do you have problems with slow-moving stock?
Can you track a new customer from quote and order through to installation and after-sales service?
Do you know which of your customers are the most profitable?
Do you have a contact programme for customers and prospects?
Do your financial records provide you with all the information you need to run your business?
Can you check profits, sales, expenses and cash flow at any time?
Do you know how much is owed to you at any one time?
Do you believe your overhead costs are increasing at a greater rate than your gross profit?
Do you forecast your cashflow on an ongoing basis and take appropriate action?
Do you have key performance indicators and measures in place that are regularly reviewed and acted upon?
Can you predict trends?
Can you produce management reports quickly and easily?