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Surviving the Recession

I think everyone has been touched by the credit crunch in some shape or form this year, but there are still some things that you can do to ensure your business has the best possible chance of surviving.

The credit crunch has resulted in lower disposable income for consumers and rising prices as suppliers increase their costs. The result for small and large businesses alike is a squeeze on profit margins.

To survive the recession your business must safeguard its cash by either increasing sales or reducing costs.

SALES

Sales should be supported by maintaining relationships with customers and monitoring the competition. Make sure your product or service continues to deliver as promised. Don’t let quality or standards slip in an attempt to gain new business or cut costs.

When finances are tight customers are even more inclined to walk if they are not happy. They care more than ever about where their hard earned cash is spent. Look after them, your customers are your biggest asset.

Don’t automatically look to reduce your prices to attract new customers. Although this may work in the short term it may not improve your overall profitability, as you need to ensure that you cover both your fixed and variable costs.

Once prices have been slashed, it is difficult to increase them again and expect customers to stay with you. Look to increase sales in other ways. What value can you and your product or service add to your customers? How can you differentiate your product or service from that of your competitors?

COSTS

An obvious way to increase your profitability is to reduce your outgoings. Can you negotiate better deals with suppliers? Do you take advantage of discounts offered for paying on time or for buying in bulk? Perhaps it’s possible to source the same items more cheaply elsewhere – whilst remembering that your quality mustn’t slip.

STAFF COSTS

It’s a fine balance between keeping staff costs under control and attracting staff who are qualified and able to do the job. Make sure your existing staff are working to their full potential. Are you using their skills to your business advantage? If they lack skills necessary for the job, consider investing time in training. This could be in-house training conducted by yourself or other staff, as a cost of only your time. Alternatively your business may be eligible for free training courses under schemes such as the Government run Train to Gain scheme.

Make sure there are no duplications of tasks and learn to delegate. As a business owner, it’s hard to step back and let someone else do something that you are used to doing – but if they are capable, there is no point in paying someone else to do something if you can’t resist redoing it yourself afterwards!

Motivation of staff need not necessarily mean rewarding them with pay rises and bonuses. Consider offering more flexible working hours or conditions. Staff with young children may welcome the chance to take extra unpaid holiday during the school holidays.

MARKETING

Many businesses see their advertising budget as a quick and easy way to reduce their outgoings, on the assumption that advertising is a luxury.

But before you act, think about the impact on your sales. If you currently gain new business from advertising and the profit from this covers the cost of the advertising, why would you stop? Consider the message it sends to your customers and the competition. If you don’t currently advertise it may be the right time to explore this method of increasing your sales – besides your competitors may be slashing their advertising budget – so make the most of it!

Networking can be a cost effective method of obtaining new business. There are numerous groups around – look for one that fits in neatly with your business. Don’t think you have to be at an organised meeting to network…social situations often give rise to conversations about business – so sell yourself!

GET TO KNOW YOUR BUSINESS

Quite often business owners are so busy with the management and growth of their business that they have forgotten what lies behind the scenes.

Cash Flow Forecasting

One way to get back in touch with your business is to use cash flow forecasting.

Chart the cash coming in and out of your business over a given period. This period may be a week, month or year. You will then be in a position to see where possible crisis points could arise, enabling you to plan an avoidance strategy. We can help you to do this.

Credit Control

As a business in its infancy, you probably had an accurate idea of who owes you what and vice versa. However, as you grow this can spiral out of control quite quickly. Negotiate payment terms with suppliers and ensure you avoid interest or charges for late payments. Chase up customers who are slow to pay and consider the profitability of customers who constantly require chasing – are they worth it?

DIVERSIFY

Think laterally about your business. If you are in a luxury niche market, can you offer an alternative that is more financially accessible? The fashion designers did it when they launched their “ready to wear” ranges….you can too!

If your particular business area is a direct victim of the recession, such as estate agency, can you diversify into a similar area, such as the lettings market?
Take the business skills you have and put them to good use.

Make sure you don’t find yourself relying on one or two large customers or suppliers, try to spread your risk over a wide base.

TAKE ADVICE

Take advice from as many different sources as possible. This needn’t cost you money – Business Link offer free advice to small businesses and HMRC offer free courses too. If you do pay for advice, you may find the money you have saved, more than pays for the professional and leaves your business in a more secure position.

TAX PLANNING

Is your business structure effective? What started off as a small back bedroom business, may have grown to a thriving SME with employees and its own premises. Businesses don’t stand still and the structure should be periodically reviewed.

The 2008 budget introduced Entrepreneur’s Relief for the sale of businesses as a going concern to a company owned by the same individual. Any gain on the assets sold, particularly goodwill, could benefit from significant tax savings.

There are various business and personal tax reliefs available for use each year, that are lost if not used before 5th April – have you taken advantage of yours?

If you are in the fortunate position to have surplus cash in your company, consider the company making a payment into your personal pension scheme, as this could reduce your company tax.

The government’s incentive for low emission vehicles has been extended to 31 March 2010, so if you plan to buy a new vehicle or other large asset, consider doing it before 31 March 2009 to claim your capital allowance in this tax year, rather than having to wait a further 12 months for the tax relief.

CONCLUSION

Although trading conditions are without doubt harder than they were 12 months ago, it is not necessarily impossible to survive.

As a small business owner you probably have more control over your financial future than an employee has.

Remain flexible and be prepared to be flexible and try to capitalise on any opportunities arising from the recession.

Be prepared to change in order to survive. Look on it as a good opportunity to review, regroup and refresh your business, so you can emerge from the recession in a far stronger, more streamlined position, than when it began.