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Will you Survive? Driving your business to prosperity in lean times
By Glen Chapman 

It is always good to anticipate tough times ahead, even if they are not so tough. So what can we do to protect our business in a tougher climate.

The following are possible starting points for you to look at. Some may suit different businesses so think about how they apply to you. The main thing is to do something now.

Immediate action items

Cash Flow Projections
Do a cash flow projection for the next twelve months at least. Look at the current sales, projects and proposals you have and do a projection forward. Ensure that you are realistic with this. It is no good getting three months ahead and really thinking that the goals you set where to ambitious.

When you have completed your cash flow, do a risk analysis of the outcomes. If you run it in a spreadsheet this is relatively simple, but even if you don't it is not hard. Look at what will happen to the cash flow with a fall in turnover, a fall in price or a rise in costs. Adjust your figures down (or up) by 5%, 10% and 20% and see what effect it might have. When you have this information look at alternative strategies you could employ to counter these types of changes.

Look at the possibilities of a worst-case scenario on your cash flow. Could you survive?

Talk with your bank
When I was in banking one of the best things you could count on in your day was that a client would ring to tell you how things were going. Why? Because they were always the ones that didn't have a problem. You could never get onto the ones who had a problem.

Clients that communicated how they were going and what they planned, where always able to fix issues before they arose. You would always be more willing to help them as things got tough.

As far as what you can do with your finance, cut down on short- term finance. Short-term finance tends to be more expensive with annual fees and higher interest rates and margins. Look at your debt and convert what you can to long-term debt. If you have made purchases recently look to see if they were really long term assets that you have bought on short term debt and convert it. If you do this early then you can save considerable amounts of money.

Also don't be afraid to shop around for a better deal. If you have your cash flow projection, business and marketing plan in hand you will be surprised at the deals you might find.

Look at working capital
Look at both your stock and debtors. Focus on cash collection from outstanding accounts. It tends to be a hard job but needs to be done. Look to reduce them to less then 60 days (<30 days even better). One of the best ways is to look at outside help.

If you focus on it now and set a strict payment policy earlier with all your customers then you can reduce the amounts and time outstanding. The problems from unpaid debtors usually arise from miss or no communication. Communicate your policy to people and then stick by it. If they expect it then they wont get upset.

A good way to do this is utilise outside agencies. Start the collection process in house when accounts go outside 30 days and then if there is no response pass it directly to an agency. It may cost you a small amount of the account but in the long run it will save you both money and heart ache.

Try to arrange extended credit from your suppliers. If they are doing what you are doing it may be difficult, but look at alternatives such as 10% in 14 days and then the balance in 40 - 60 days. They might be grateful for the cash up front but you get the majority on the extended terms.

Look at what is slow moving or obsolete stock and eliminate it early. Look for alternatives to supply products without stock on hand.

Set up a Just in Time (JIT) delivery system with your suppliers. It may take a little time to arrange transport and ordering procedures in the beginning, but in time the Return On Investment (ROI) will be high.

If JIT is not suitable for some or all your products or if you offer a service, adjust your terms to give up front cash flow.

Get deposit on orders - this works well with service providers that do larger jobs. We generally work on a 30% deposit on commencement of jobs over $1000. This allows us to get started and pay for supplies and sub contractors with out the stretch on short-term cash flow.

Look at COD for suitable product types

Look to the future now
Take advantage of the new start to improve the business system as you build it again. Look at things you weren't changing because of the admin cost with a larger business and make the changes now so that when you grow again you will be operating better and more profitable.

Fine-tune your economics
Any business has areas of its operation that can be improved to ensure the best returns. Look at benchmarking to determine where you can adjust your business -- turnover, overheads, margins or costs of goods. Small changes in one or more of these can make a big difference through the business to the bottom line.

Put something away
Look at ways to put cash aside. After doing a benchmark analysis of your business put the saved cash into a pool ready for harder months or to take advantage of opportunities. Companies like ING have great accounts that offer good interest rates and ready access to your funds (Note ING can only take money in a personal name). Shop around for a good account.

Review you clients
Review your client base. Look at the your returns with the 80/20 rule in mind. 80 percent of your business will come from 20 percent of your clients (maybe 60/40, 90/10 or 70/30). Ensure that these clients are diversified and that there is not exposure to one large client.

--> consider offering incentives to buy now

--> look for clients in non-traditional areas. If you are a local business look at your region or nationally for new clients

--> remember that the cost of selling to an existing customer is many time lower then trying to acquire new ones. If you have a good client base look at ways to better service and offer new products to them.

--> Maintain communication with clients regularly, offer free information that benefits them, so that when they are ready to buy during this period they are more likely to be loyal to you.

Products and Markets
Pick a niche with little competition or look to your "core" business. Niche markets are usually not serviced by larger companies and tend to be specialised and loyal. See if there is one in your type of product and focus on developing this.

If you have a number of products or services look at which ones return better and focus on what you would consider your core business. Businesses that focus are able to reduce overheads and cost of goods to maintain margins even as prices fall. If done correctly you will still be making a profit margin at the bottom of the cycle, which if you maintain focus, will return large margins as the market improves.

Keep Morale high. Communicate with you staff about what is happening. This is important at any time, but even more so now. If they know what is happening and they enjoy working with you, they will help to keep things going. 3/4 of a job now is better then no job in twelve months time.

If you have to reduce your staff numbers, then do it quickly and don't let the anxiety linger for you and the staff not knowing who is to go.

Look for opportunity
When an economy turns down there are opportunities for those prepared to take them up. As other businesses that decide not to change things start to falter, if you have planned and have the reserves available you can take these opportunities to build a business that will be many times better off at the other end of the change. These opportunities may be in buying businesses, increasing market share or expanding into new markets or products.


I listened to a speaker give a talk on opportunity. He said opportunity knocks all the time; we just need to know what it looks like. And it usually comes when you least expect it and are least prepared for it. Get prepared and look out for it.

"If you don't change the way you do things, then each time you go to work and put the key in the door say to your self "I could be improving the performance and survival of my business today, but I choose not to".Chris Cull, OzAdvice

What ever you do -- Start today.

(© 1995 – 2007 Glen Chapman)

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