To survive and be successfull in a tougher commercial environment businesss will need to focus on strategies which
- Manage Cash Resources
- Enhance Asset Utilisation
- Reduce Business Costs
- Improve Efficiencies
- Protect and Enhance Customer Base
With higher interest rates and tightening credit availability the philosophy of "CASH is KING" becomes even more relevant. Careful management of your cash position will always serve your business well in any economic climate but in an economic downturn it is even more critical. Actions to take
- Forecast your monthly cash requirements matching monthly outgoings on operational and capital spending with forecasted cash receipts. Proactive management of your cash position will enable the business to deal more effectively with customers, suppliers and banks. Retaining the confidence of all stakeholders in the business (owners, employess, customers, supplers etc) during difficult trading conditions may be critical to the survival of your business.
- Timely collection of your outstanding customer debts is a major component in your cash management strategy. Monitor your debtors aging profiles carefully, reinforce your credit terms with your customers and ensure that debt collection tasks assigned to employees within the company are followed up regularly.
- Where necessary re-negotiate credit terms with suppliers. Maintaining the confidence of your supplier in a downturn may be key to protecting your supply channel.
Enhance Asset Utilisation
Focus on reducing the working capital requirements of your business. Actions to take
- Reduce slow moving stock and obsolete stock to a minimum.
- Manage your supply chain to improve inventory turnover as much as possible. Reducing the lead times of your supplers or setting more realistic expectations with your customers may lead to lower stock levels which will mean you have less money tied up in stock, less risk of stock loss , damage and stock obsolescence.
- Review your sales profiles - know your higher volume/margin items and reduce unnecessary non standard items from your product portfolio.
- Maximise your credit terms with your suppliers. Reviewing the number number of suppliers from whom you source product may lead to consolidation and opportunities to improve trading terms and lead times with your primary suppliers.
Reduce Business Costs
Management of business costs in any trading environment is always important however, in a downturn it becomes even more difficult to pass on cost increases to your customer. Companies need to review their costs carefully before implementing cost reduction strategies. Knee-jerk slash and burn strategies may achieve short-term cost reductions but may have longer term negative impacts on the growth potential of your business. Actions to take
- Ensure your business system / accounting package enables you to categorise your expenses and has good visibity in terms period comparisions (year on year, month to month etc) and ability to drill down in sufficient detail to understand the source of the expense.
- Identify expenses which are most likely to yield higher savings and determine whether these expenses can be reduced or eliminated without negative impact on the business.
- Source your suppliers carefully and make price comparisons with competitor suppliers. Better deals may be available.
- Plan the introduction of cost savings strategies carefully and understand likely impacts on employees, customers and suppliers.
Businesses need to review their systems and processes to ensure that products and services are delivered as effectively and efficiently to the customer as possible. Actions to take
- Review the activites that are undertaken within the company.
- Question, Question ,Question. Question why things are done in a certain manner. Historical rationale for doing things that way may not relevant now.
- Identify any duplication of activities. Duplication leads to additional costs and opportunities for errors.
- Identify whether the volume of transactions generated can be reduced (invoices, credit notes, supplier/customer returns etc)
- Examine whether your system/processes facilitate getting things right "First Time". Correcting/fixing errors can be a very costly expense for a business and by it's very nature is something which does not contribute any additional value to your customer.
Protect and Enhance your Customer Base
Without customers your business does not exist. It costs a lot more to win new customers than to retain your existing customers. Actions to take
- Ensure that your business system allows you to analyse your customer sales easily and informatively.
- Understand your customer and product profitability mix well.
- Have a process which facilitates a view of customer interactions across the company. The business needs visiblity of what's happening at various levels from sales, quotations, back orders, deliveries, credit control, customer service etc. Custmers get a much better impression of a business where the "right hand knows what left hand is doing"
- Make it easier for your customers to do business with you and try to improve their experience of interacting with your employees across the company.
John who if the founder of Koncept Business Solutions is a Chartered Management Accountant with over 20 years exerience across industries ranging from Food Processing, Manufacturing, Wholesaling, Service and Information Technnology. Visit us at http://www.konceptbiz.net/
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