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Dear Business Owner,
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.
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).
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 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).
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