Part Two: Tactics for success ahead of tough times

For many business owners, running a successful business is challenging enough, let alone ensuring the business is thriving when approaching headwinds are looking exceedingly tough. Globally and within Australia, the headwinds of rising interest rates, inflation, and shortage of skilled workers can be fatal if not managed well.

For part two of our four part series ‘Surviving or Thriving’, we cover off three strategies business owners can draw upon to improve the probability of business success against these headwinds. You can read part one here.

 

1. Protect and grow your revenue

Protecting revenue ahead of a potential downturn is critical. Contact your key customers and ask them how their business is faring. Meet regularly with high value customers and offer your support. Understanding their situation means you will be better informed about what you can do to assist them, and thus protect and potentially grow your business’ revenue. Regular catch-ups will also make it easier to spot any potential red flags around viability of your customers businesses.

With revenue protected as far as possible, growth of revenue may seem unlikely, or out of reach in a market that is turning. However, there are several areas you can focus on. Low cost sales strategies, and re-aligning sales and marketing programs may seem counter intuitive, but can offer potential growth in a time when competitors are winding back non essential spending. Global research by Harvard Business Review indicates companies that maintain marketing spend while reallocating it to suit the context during a downturn – be it in product developing, advertising and communication, or pricing – typically fare better than firms that cut their marketing investment.

In the recession following the 2008 financial crash, London based consumer goods company Reckitt Benckiser increased its advertising outlays by 25% in the face of reduced marketing by competitors. The company actually grew revenues by 8% and profits by 14%, when most of its rivals were reporting profit declines of 10% or more. HBR

Increasing sales and marketing activity also shows leadership by spending more time with your customers and sales team, and builds morale at a time when it can be most beneficial.

2. Reduce your costs

A reduction in revenue and/or profit means you may need to examine your cost structure to maintain your profitability. Be prepared to make some hard decisions. Low fixed and high variable cost is the ideal cost structure for doing business in tough times.

• Non Trading Costs: Try to reduce or eliminate non trading costs. For example, examine wage productivity reports and restructure non productive roles or encourage multi-skilling to maximise your employee return per hour. Staff reduction is not necessarily a given in tough times!
• Variable Costs: Examine all your expenses and investigate ways to transfer your business’s fixed costs to variable costs. Outsourcing is a variable cost strategy.

3. Collect your cash

Collecting cash from your customers may become more difficult. Watch your cash flow. Consider amending your policies for debtor collection and stock management.

• Debtors Collection: Place tighter limits on the amount of credit you extend to your customers. If you have exposure to large customers, seek assurances and
  guarantees on how they will pay their account. Enter repayment schedules and offer ‘cash only’ terms until your customer accounts are in order. If the decision is between being flexible and survival there is really only one choice.
• Stock Management: Don’t over invest in stock. Place strict controls over stock ordering and management. If customer sales slow down so should your ordering.

Ensure you are proactively planning to minimise your risks

It is important you move quickly to minimise your business risk. Alongside tactical changes such as those mentioned above, a critical step is re-examine or prepare a new Business Plan to review and assess your current situation and begin planning or to pivot for the future. In preparing your Business Plan, obtaining independent and objective advice is highly valuable – so much so we wouldn’t recommend doing a business plan without external advice, which, when sought early can mean the difference between your business thriving, or barely surviving.

If you’d like to discuss your current or new business plan, contact our Business Advisory team for more information on our Business Planning services.