Surviving difficult times print Print

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Every business experiences both good and difficult times, some driven by external events such as major market or industry downturns, and others by difficulties within the business. These changes make it important to ensure your business is in good shape to meet any challenges that lie ahead. The best time to plan for change is right now.


If you are facing difficult times, two mistakes to avoid are to assume that things will stay the same or that your business can adapt to new circumstances as they happen. Harder times bring some tough challenges, but also some clear opportunities. The businesses most likely to survive and take advantage of opportunities (such as competitors failing) are those that have done their planning.

Here are some steps you can take.


Reduce your vulnerability

Fix what you know you should

Many small business owners already have a 'gut feel' for what they need to fix in their business, whether it be spending less, putting more time and effort into sales calls or cutting down on travel expenses. Now is the right time to make some of the hard decisions you may have been avoiding. In prosperous times it is tempting to let things slide or not to worry too much about monitoring costs. But as tougher times approach it's really important to improve efficiencies - starting with your business systems.

Monitor and set targets

In tough times good financial management is even more critical. Meet with your accountant to select some key performance indicators (KPIs) in your business you need to monitor, such as the gross profit and net profit margins. Monitoring KPIs will enable you to set targets, spot trends in your business and take timely corrective action. Your accountant may be able to supply benchmark figures for your industry, or you can purchase them from the Management Research Centre, University of Waikato.* These figures will enable you to measure the performance of your business against the industry standard, so you can set improvement goals.

Keep a close eye on operating costs

Some typical cost increase 'culprits' are cell phones and advertising costs (especially if you don't measure the results from advertising - in which case you'll have little idea if you're getting value for money). Salaries and wages also need to be watched - especially if they increase while profits stay static or decline. But most businesses can also make smaller efficiencies that can add up, such as saving electricity and reducing waste.

Lower your debt levels

Try not to carry high debt levels into an economic downturn - it may become more difficult to service them. Meet with an ANZ Business Specialist to assess your current loans and discuss possible ways to achieve a more balanced loan portfolio.

Preserve cash

The reason is simple: in order to make $1,000 in profit, you may have to make $10,000 in sales (or whatever your margin is). So use the opportunity to monitor your spending and costs very closely. Preserving cash is critical for other reasons. In difficult times cash is king and can tide you over dry spells. Having cash on hand also gives you the leverage to take advantage of opportunities that may arise. For example, you may be able to buy out a struggling competitor.

Free up cash

What can you do to free up cash in your business? Here are some suggestions:

  • Hold a sale of slow moving stock. Follow this up with improved stock control systems and try to organise 'just in time' stock replenishment rather than tying up cash in stock. Also monitor your rate of stock turn and set improvement targets.
  • Sell assets. Consider selling assets that are underused and hiring the equipment when it's needed. It may be possible to sell an asset (such as a car or machine) and then lease it back. Leasing can free up significant amounts of cash for working capital, so discuss the possibilities with your accountant.
  • Keep assets for longer. You may have a policy of buying a new car every three years, can you stretch it out to five or six years? Apply this to other assets too. Few businesses that are not 'high-tech' need the latest computers or operating software every second year.
  • Sell your receivables. Selling your outstanding invoices (invoices customers have yet to pay) to a factoring company can speed up your cash flow and relieve you of most of your debt collection tasks. If you are currently paying someone to do this work then using a factoring company may offer wage savings.

Monitor your cash flows

Complete a cash flow forecast and keep it updated. Pay attention to your weekly and monthly cash flows, to ensure you can pay bills, business operating costs and service any loans. Use some of the cash you free up from your business for a contingency fund. The bottom line: if you don't run out of cash, you can stay in business until conditions get better.

  • Tighten credit lines. Your customers may be able to pay you now, but will they still be able to pay you when things get tougher? You may need to rethink your credit terms and enforce them more firmly. Make a list of the vulnerable customers whose failure might impact seriously on your business and run a credit check on them. Be cautious about accepting new credit customers without a credit check first. Can you switch more of your business to cash sales?
  • Tighten debt collection. Most businesses can make significant improvements in this area. First identify your current average debt collection time, and then set an improvement target. For instance if it currently takes you 45 days on average to collect debts, and the industry standard is 40 days, then your first target is to match the industry standard. Your next target might be to do better than the industry average. Our article on How to collect debt will help.
  • Combat inertia. In good times simple inertia can increase costs because it's always easier to go with existing suppliers than look for new ones. When was the last time you got competitive quotes for products, insurance, cell phone plans, printing and other operating costs? Getting new quotes can deliver significant savings (but ensure that quality remains acceptable).

*ANZ does not warrant the quality of the goods/services described, or the suitability for your particular circumstances. To the extent permitted by law, ANZ excludes liability for any loss suffered as a result of the use of those goods or services.


What to avoid

Desperate discounting

Avoid tactics that don't work, such as discounting to gain sales. This can be tempting in difficult times, but there are serious disadvantages. Firstly, you may end up in a discounting war with competitors-who may have deeper pockets. Secondly, discounting can seriously erode your profit margins, which may already be thin. Thirdly, you have to sell more-sometimes lots more-just to maintain your margins. For example, if you sell an item for $100 and your cost of goods is $70, your gross profit margin is $30. Offer a discount of $10, and your gross margin on the discounted selling price of $90 reduces to $20. You're actually giving away 33% of your gross profit. That's hard to make up and will require substantially increased sales. Will this happen? Instead of discounting, try to add more value to what you offer.

Doing the same

If sales are dropping off, then there's little point in continuing to sell in the same way. It's time to try something new. What sales tactics haven't you tried? For example, have you tried direct marketing or marketing through the Internet? Can you form a joint marketing venture with a complementary business and share the costs? Look to work with businesses that have good customer databases.

Failing to innovate

Failure to innovate leads to business failure. There is always another way. A crisis is a clear call to get out of your comfort zone. Making the effort to do this can both strengthen and improve your business.


Solve weaknesses

Where is your business most vulnerable? Hold a morning session with your staff to complete a SWOT analysis (Strengths, Opportunities, Weaknesses and Threats). Identify your weaknesses and solve them. For example:

  • If you are not good at marketing, seek quality marketing advice.
  • If you are not strong on financial management, find a good financial advisor and keep in closer contact with an ANZ Business Specialist.
  • If you haven't developed an advisory board, then start one now. Making decisions on your own in times of crisis can be very lonely. You need quality support and advice even more in times of crisis.

Worst-case scenarios

Identify what could go wrong in your business. Discuss some worst case projections with your staff and advisors and plan what you might do to survive financially. Pay attention to market changes, economic impacts and what's happening in your immediate area. How will these changes affect your industry?

If your industry is in trouble, try to assess what the issue is and then solve it. For example, the real estate industry has been seriously impacted by the property market downturn. Many have left, but others will likely profit from their exit and emerge even stronger. What can you learn from the best in your industry, and what changes do you have to make to be among the survivors?


Increase sustainability

Identify what works

Identify what's going right in your business and do more of it. For example, analyse your most successful sales tactics. Can you repeat or extend these? In tough times, the most effective marketing is likely to be highly targeted marketing based on an excellent knowledge of the customer. Identify your key targets and hit them directly with relevant marketing messages that solve their problems.

Lock in customers

Look for ways to retain your better customers and ensure they stay loyal. What incentives can you offer to lock them in? Can you get some of them to sign contracts? Keep in close contact with key customers. Revisit the customers you rely on and overhaul your systems to ensure your customers get better service than they would from competitors.

Talk to your staff

Review your staff to ensure you have the right key people to get you through harder times, then look for ways to motivate them. Consider flexible working hours, more recognition for their effort, and setting goals that stretch them. It's important to get your staff involved in gaining new business - they need to be aware that it's up to them as well.


Position yourself

Planning can help you position your business to do better in a downturn than your competitors. If you can build up a contingency cash fund, then you can take advantage of the opportunities that will emerge. For instance, you may be able to buy out weaker competitors and acquire their customer base. You may spot opportunities for innovation or for new products or services.

New markets

During good times you may have neglected certain markets or opportunities or felt they were not viable. Now could be a good time to reassess their potential. For example, have you considered exporting, developing new distribution channels or improving your website?

Keep motivated

Finally, keep your own motivation levels high. If you allow yourself to become dispirited by adverse conditions then your thinking may narrow, cutting you off from fresh ideas or innovative thoughts. This is another reason to surround yourself with a positive team of advisors, and to keep on networking so that you pick up the latest trends and developments from your business contacts. Develop a vision for your business that looks beyond the difficult times to the opportunities and upswing that will follow. Then share that vision with your staff and key stakeholders.


Further information:

To talk to an ANZ Business Specialist:
Call 0800 269 249
Visit your nearest ANZ branch


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