Unwelcome as a looming downturn may be, it should spell long-term success for businesses that embrace the opportunity to run a tighter ship. Remember, your competitors are facing the same storm what matters is that you come through it better than they do.
TIP 1: Manage your cash flow mercilessly
Monitor your cash flow like a hawk, with three-month rolling projections of daily cash balances.
Protect your liquid assets: beef up your collections consider prompt payment discounts, and stretch your creditors sensibly (if and when you have to).
Keep an eagle eye on all aspects of your business.
Regularly examine your key performance indicators, especially ones measuring future performance rather than past (eg order intake, in addition to invoiced sales).
TIP 2: Critique your credit capacity
Take worst case scenarios and predict how you’ll cover interest payments and what will happen to your gearing ratio (your ratio of debt to equity, which your bank may well have set parameters for).
Although your business may be carrying its current debt load comfortably at the moment, when will it start to splutter, if sales and profits decline and interest rates rise?
Don’t bank on your bank to lend you more money when you need it negotiate now for increased credit facilities, and find out where you stand before it’s too late – the credit crunch has greatly increased your risk in this area.
Sell non-core assets sooner rather than later, if you might need the cash.
Don’t wait to raise external equity, if you really can’t do without it. This gets increasingly expensive and difficult when a recession bites.
TIP 3: Sell smarter
Decide how vulnerable your revenue streams are during a recession: both the demand for various products, and specific customers.
Prune unprofitable and risky revenue streams and increase robust ones, while your competitors cut back.
Map your selling processes and manage your sales people’s time more aggressively.
Sharpen up your specialist knowledge, use the human angle to sell and, most importantly, make sure the whole sales team are properly briefed.
Use your databases more effectively to target sales efforts to your most profitable customer groups.
The Pareto Principle states that, on average, 80% of your profits are coming from just 20% of your customers. Use this information to your advantage.
TIP 4: Market more efficiently
Track the cost of acquiring customers and conversion rates for each source of leads you have.
Cut out unprofitable advertising.
Allocate marketing resources accordingly – this probably means ’emphasise your e-marketing’ and ‘sort out your search engine optimisation’.
Take full advantage of free PR by sending out monthly press releases about your business to local newspapers and trade press.
Incentivise your customers, friends, online visitors and other contacts to make referrals to your business.
Attend as many networking events as possible and hand out your business card as often as you can.
Offer guarantees and use testimonials and case studies to instil confidence in potential customers
TIP 5: Cut costs cleverly
Analyse your break-even point and plan to drive it down. Reduce fixed costs and increase outsourcing.
Make cuts consistent with the recession-proof business plan, not blindly and across the board.
Increase the efficiency of your workforce by managing staff with individual monthly meetings to review progress.
Cull under-performers sooner rather than later.
Make contingency plans and set trigger points for successive cost-reduction initiatives, so you can put them in place without delay if the need arises.
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