How can you protect your business from a Downturn?

Business Turnaround or Growth

How can you protect your business from a Downturn?

Dear Reader,

Welcome to the November issue of Game Plans for Growth, the newsletter for business Owners and Managers.  This month we look at ways you can protect your business from a downturn.

If you find this newsletter helpful please forward it onto your colleagues.  Please do feel free to email me as we welcome feedback.

The Idea

With the CBI lowering its growth forecast for 2009 to just over 1%, and BDO Stoy Hayward forecasting Business Insolvencies rising by 18% next year, (and also noting that both these predictions were in June 2008 before the current market turbulence), prudent business owners should now be critically examining how to reduce their risks.

If one of your larger customers debt becomes irrecoverable it can create major stress in your business so it was no surprise that the ‘loss of a major customer or a large bad debt’ featured prominently in our top 10 warning signs of financial stress or trouble (see our Business Recovery newsletter).

Game Plan

These are our key tips on how to protect your business from a downturn:

  1. Forecast Sales – Talk to your customers about the outlook and their reaction to the current market conditions; a realistic Sales Forecast is invaluable in helping plan any business.
  2. Key Performance Indicators (KPIs) – Determine what the Key Performance Indicators are for your business, including the lead indicators for business generation such as sales prospects and meeting conversion rates.  Ensure these are produced regularly and heed what they say.
  3. Weekly Cash flow forecasts – Produce regular weekly cash flow forecasts which help identify key financial stress while there is still time to manage it.
  4. Management Accounts – Ensure that Monthly Management Accounts are produced which are timely, accurate and help inform your decisions.  Management Accounts that track progress against your budget or plan stimulate questions and strategies to bring the business back to plan.
  5. Avoid over-reliance on major customer  – Don’t allow your business to become heavily reliant on any one customer as this massively increases the vulnerability of a business.  If your largest customer accounts for more than 10% of your turnover warnings bells should be ringing.
  6. Manage Customer Debts – If your largest customer went bust how much would you loose?  Balance this thought with the ongoing profit such a customer generates each month.
  7. Check out your customers – Rather than looking at insuring your Debtors it is better practice to assess all potential customers and to set credit limits for each one.  This helps you to manage individual customer exposure.
  8. Re-Engineer your business model – If your forecast sales are down significantly then you must review your business overheads critically to enable you to ‘cut your cloth’ accordingly.  Putting off this critical review could be fatal for your business.
  9. Talk to the Bank – Keep talking to your bank manager, keeping him updated with both positive news but also let him or her know the challenges your business is facing and how you are managing the situation.  The bank’s support through testing times is vital.
  10. Keep Smiling! – These are tough times but good businesses will survive and emerge later stronger as a result.

The End Result

The consequences of the Market Turbulence are hard to predict, however you can significantly enhance your businesses chances of success through these tough times by working on your business rather than in it, and applying the key tips above.

Rather than chasing Donald Rumsfeld’s ‘unknown unknowns’ (the ones we don’t know, we don’t know) far better to “Stay calm; mind your own business; do your own job” (St Paul’s letter to the Thessalonians – message edition).

If you would like an informal chat why not contact us?