When the credit crunch hit I was struck by how many businesses adopted a slash and burn mentality. Doubtless many businesses had been complacent and there was fat that could be trimmed, but also there was a reluctance to spend money on the things that would take them forward, whether it was marketing, skills, IT or equipment.
The financial markets are in turmoil, the ICAEW/Grant Thornton business confidence index is now at its lowest level for two years. Whether the concerns are well founded or not there is uncertainty in the air!! Here are some tips for steering through uncertain conditions:
Review your business strategy. What are your business’s strengths? What are its weaknesses. There may be new opportunities as well as risks. Circumstances may have changed and you may need to change your approach.
Spend smart. Yes do cut out fat, but if you believe your business has a future then invest in it. Approaches may need to change, for example what was smart marketing last year may not be smart now, however it doesn’t mean that you shouldn’t invest in marketing. Talking more generally, think about what you are spending on and make sure it is effective!
Dont be rash manage your cash!
– I generally recommend a 13 week cash forecast that is updated every week.
– Your customers may not be as secure as they were, so having strong credit control is an imperative take the attitude its not a sale until its in the bank.
– Make sure everyone whose job impacts on cash knows they have a part to play from the sales director to the person that issues invoices to customer services and operational department.
Drive safely. If you are driving a car it’s a good idea to not only look at what is happening to the next car in front but also further ahead- the same applies to business.You hopefully have a business plan – invariably plans and outcomes are not the same. It can be a good idea to look beyond the 13 weeks (at least to the end of the financial year) and prepare financial forecasts, so you can see where profits and cash are heading.
How often should forecasts be done? This can depend on the companys circumstances. It may be sensible for a complex business with unpredictable income and a tight cash position to update forecasts every month. However a small uncomplicated business with regular income and no anticipated cash flow problems may not even need to bother to prepare formal forecasts as long as the circumstances dont change.
Make sure that you have a vehicle that you want to drive. Continuing the driving analogy, would you want to drive a car with an unreliable speedo or satnav? Wrong information can lead to wrong decisions. Make sure that your management information is reliable and informative; this applies to all key information not just accounts.
Would you be keen on driving a car that is leaking oil? Cash is the oil of business, it is a good idea to minimise the chances of it leaking (either through inefficiency or fraud).
Make sure that you have processes, information and skills that help you take advantage of opportunities and to mitigate risks.
Changing circumstances can require new approaches, however the basics shouldn’t change; informed decisions can then be made that are relevant to your business as opposed to getting overly influenced by a general tide of pessimism or optimism.
If you would like to know how this can be applied to your business then please contact David Lewis, on 07836 331677 or e-mail firstname.lastname@example.org