Business survival strategies

How to survive in a business downturn

They say that the golden rule for business survival is to get out of the rat race every 6 months and rewrite your business plans.

This involves locking yourself away for a period and analysing your business successes and failures. Write them down, identify your weaknesses and then work out a solution to overcome them.

  1. Evaluate Your Business.
    If things are in a downturn mode it is time for you to review your business and its operations. See whether your business needs to undergo improvement. Whatever you do make sure it is more efficient and less costly.
    It is important to monitor your cash flow. During a business downturn cash can easily dry up so you don’t have sufficient cash to meet your bills when they fall due. Check this daily. To ignore it is to invite huge problems. During a downturn, you and your accountant need to monitor, on a daily basis, how much cash you have in the bank, what cash is coming in, what is going out and what you need to keep your head above water. Do this daily until things improve?
  1. Look at Your Location and Premises.
    If the downturn has set in and it looks like it will run for some time, you may need to look at your location and premises. Are your premises too big for what you need? Is there a possibility of subleasing some of the space, or is it time to consider moving to premises with less rent.
    Be careful you don’t disadvantage the business by moving into an area with no parking, or where the services (such as water, electricity or Internet) are not well maintained. Looking at your location and premises may help your situation.
  1. Suppliers.
    You may need to approach your suppliers for extra credit during the tough times you are experiencing. Try and arrange bigger volume discounts from your suppliers if you can give assurance of larger orders being placed with them. For these large orders to be a consideration, your customers would have to commit to buying more from you. In any event, looking at your suppliers and what can be done with them is another important area.
  2. Make Hard Decisions.
    You may have to call for some belt tightening in the business. This may result in slashing some of your operational costs. It would require the cooperation of your employees. Handle this openly because if employees feel their jobs could be in jeopardy (if the business fail) they will be more likely to support whatever strategy you want to put in place. You have to make many tough decisions so employees’ know that the management and the business are also cutting back. This may involve cutting back on asset purchases or on things such as not replacing cars or not going ahead with plans to add a wing to the offices or shelving all non-income producing activities.
    Other difficult decisions may also need to be made, such as reducing bonuses, or arranging for staff to take annual leave during the downturn (to save wages costs) or temporarily postponing the launching of a new product (with its heavy promotion costs) or other similar decisions.
  1. Check Your Customers.
    You may need to investigate your customer base. Find out which customers are ordering and which ones are not. Look at the customers who are your best buyers and encourage them to buy more, with a discount. Find the customers who are costing you money. They may not contribute much to profit, because of the small amount of purchases they obtain from you. Look at customers who are taking longer with their credit and not paying their accounts on time.
    When things are tough you will find your customers will try and get extended credit off you. Weigh up the damage (if any) that could come by pressing for prompt payment from customers who are overdue on their accounts.
  2. Increase Your Sales.
    Examine every area where you may be able to sell more to your existing customers, as the costs of securing new customers is prohibitive during hard times. You may need to come to an arrangement with your banker or other lending organisation to temporarily fund you as that would enable you to extend credit to customers in return for increasing their purchases. It’s the time to be creative. Come up with new ideas for securing new opportunities (e.g. offer your customers benefits if they increase their purchases from you)
  3. Work with Your Bank.
    Difficult times generally mean you have to talk to your banker about temporary accommodation. Remember your banker is receiving the same requests from other many customers, so don’t expect to find this task an easy one. Nevertheless, try to arrange accommodation with your bank early to avoid problems.
  4. Your Employees.
    Look over your employees and see if it is time to weed out those who are not productive, thereby saving you the cost of wages. When things are tight, consider reducing your staff cost because this is usually one of the highest costs a business has. You may have to lay off some staff for a while and inform them they will be called back when things improve. There are quite a number of options involving employees, including asking them to work for reduced remuneration to assist the business to get through the difficult period.
  5. Leasing.
    Leasing allows you to preserve your cash while still having the equipment for use in your business. In the long run, this option works out more expensive than buying up front, but it does give you 100% tax deductibility and more importantly, helps with your cash flow.
  6. Reduced Costs.
    The basic formula has never changed – the best way to weather the storm during periods of business slump is to increase revenue and reduce costs. Check over your business costs and see if savings can be made in the some areas such as utilities, use of mobile phones, vehicle expenses, unnecessary overheads, etc. The whole exercise of cost cutting should have priority over almost anything else during tough times.

4 ways to overcome your sales slump

The following are some suggestions for overcoming a sales slump:

  1. Get in front of your customers.
    Your sales people will need to get in front of your customers as soon as possible, and as often as possible. This may seem an odd statement to anyone who is not involved in selling, but the behaviour of customers is quite predictable. Your sales force has to show their face to customers so they feel secure and confident that things are running okay. When confidence is lost and your customers see that sales people are being laid off, or other problems are obvious, this can have a drastic effect on customers’ comfort and their buying. Your sales can slump virtually overnight, because customers will move away to buy from other firms that appear to be stronger.
  2. Work closer with your customers and provide that extra customer service.
    During tough times be the business your customers seek for advice. Customers will be seeking help on ways to reduce costs or on how to operate more efficiently. Be the people that they come to. It’s a great opportunity for your sales people to help their customers with sound advice or sound suggestions. They will in turn be faithful to your business and continue their buying only from you.
  3. Work to have your products shown as being of the best quality or possessing unique features.
    Your customers, and particularly your prospects, should be aware that your products are the best in the field. Don’t assume they will know this without some promotion from your sales people. Ask your customers how they perceive your products and your company and make sure there is a differentiation so your customers will come to you rather than your competitors.
  4. Push your sales.
    Its time for the sales people to get together and work out a strategy whereby they can hit every prospective customer and increase those sales figures. Many sales people are good talkers, but few get seriously into the role of prospecting and closing sales. Every member of your sales team needs to get serious about prospecting. Prospecting is basically speaking with those people who want to speak with you. It’s involved in identifying the people you want as customers and then putting together a plan to cultivate them so they will end up doing business with you – and only you.

8 ways to “kick-start” your cash situation

If your cash is starting to run out, then it’s time for drastic action. If your cash is flowing out faster than it is coming in – you have a problem.

This situation can occur for a number of reasons. It could be a sign, for example, that your business is growing faster than you can control. It could be that a customer who owed your business a great deal of money has gone into liquidation thereby losing you, say, $50,000 of cash you were expecting to receive the following week. Cash shortage can be due to many reasons.

If your business is experiencing a poor cash liquidity situation, there are steps you can take to generate some quick cash, as well as reducing your costs.

Some of these include:

  1. See your bank.
    See your bank about extending your overdraft accommodation or giving you a line of credit. As your needs are probably only temporary, this extra accommodation for working capital could make the difference.
  2. Hold a fire sale.
    Put together all the stock you want to quit and turn into quick cash by offering substantial discounts or other incentives.
  3. Lease equipment.
    Don’t tie up cash by purchasing equipment when you can make use of that equipment by using leasing facilities. You can lease almost any type of office equipment; vehicles, computers, etc and this can save a lot of ready cash in the immediate future, even if it does end up being more expensive in the long run.
  4. Factor your debtors.
    You can factor the debts owing to you by your debtors. All that happens is that you sell the debtors to factoring company and they will pay you, say, 80% of your total debtors and then they collect the money from the debtors later. They will keep their fee and pass over the balance to you. You will end up getting 5 – 10% less than if you waited for payment, but at least you will have the use of the cash up front very quickly which is probably more critical for the business.
  5. See your suppliers.
    Ask your creditors for an extended term to pay so you can still purchase what you need to resell, but you won’t have to pay the supplier for two or three months.
  6. Reduce your stocks.
    Get stock levels right down by quitting them for discounts or selling them through other processes, e.g. barter.
  7. Use leaseback.
    You can use equipment you already own to secure funding. What happen is, you transfer the equipment into the name of the company doing the deal with you and they will give you the cash for it. You then lease the same equipment back from that company and pay them a leasing fee over a period of time.
  8. Advance payment details.
    If people who owe you money are paying on a monthly basis, there is an opportunity here to offer them a substantial discount if they will pay you up front for a twelve-month period at a time.

How to handle a cash shortage crisis

  1. Stop buying raw materials or stock
  2. Carry out an immediate stocktake including raw materials and packaging and identify which stock is readily saleable and which is out of date.
  3. Prepare a list of your debtors ie. People who owe you money and carry out urgent action to collect these
  4. Prepare a list of your creditors ie. Those to whom you owe money and make arrangements (if possible) to delay payment of these.
  5. Review your immediate sales programme to decide your real sales potential within the next month, 3 months or 6 months.
  6. Develop a plan to quite old stock immediately at the best possible prices to raise cash.
  7. Develop a plan to reduce your stock of raw materials and quit old and damaged materials.
  8. See if you are able to return any of your stocks to the supplier for credit.
  9. List any assets such as plant and equipment that are not in use and that can perhaps be sold for cash.
  10. Check your present overdraft accommodation and see if you are over the limit and if so, what can be done about it.
  11. Review your own personal expenditure and see if there is any possibility of saving in these costs temporarily.
  12. Draw up a new cash flow forecast and discuss this with your accountant and bank manager to see if a plan can be worked out to assist your temporary cash problems.

Watch out that you don’t

Here are some survival suggestions for you to consider:

  1. Watch out that you don’t lower stock levels too low.
  2. Watch out that you don’t allow your debts to be uncollected for too long.
  3. Watch out that you don’t have bad accounts that are not chased up.
  4. Watch out that you don’t hold your cash for too long in the office – make sure it is banked.
  5. Watch out that your profit margins are not too low.
  6. Watch out that you don’t operate in inadequate floor space for the business.
  7. Watch out that you don’t forget to move staff into profitable areas.
  8. Watch out that you are not running your business with a lot of inefficiencies.
  9. Watch out that you are not taking too much advantage of using your credit card.
  10. Watch out that you are not delaying payments to your suppliers for too long.
  11. Watch out that you are not opening the business for hours that are not long enough.
  12. Watch out that you don’t forget to review your interest rate periodically.
  13. Watch out that you are not identifying dead stock and not getting rid of it fast enough.

Suggestions and advice for survival

Check These Survival Tips for Small Business Owners

  1. Before you start, make sure you know exactly where you stand financially before you commit yourself. This will require work on budgets and planning.
  2. When you’re making plans for success always make plans of what to do if it fails. It was Franklin D. Roosevelt who said that “When you get to the end of your rope, tie a knot and hang on”.
  3. In business watch your enemies (competitors) close and your “friends” (directors, managers etc) closer.
  4. Before signing a lease for premises or assets always read the terms thoroughly and discuss with your lawyer before signing.
  5. Generally buying into a good ready-made business with your own cash is the safest way to start
  6. When buying a business there is a tendency for the seller to overvalue his proposition so a cynical mind is the safest approach for you as a buyer.
  7. If has been said that the chilliest draft is the overdraft because while many businessmen owe their success to the assistance received from a bank, overdrafts can be risky.
  8. One of the first things to consider when you are caught with a bad debt is whether it is going to be worthwhile taking legal action to recover the debt or whether it is easier to write it off and claim it as a tax deduction.
  9. Never make anyone a director of your company unless you are sure they will support you at all times and that they will always remain loyal to you the founder.
  10. If you can, bank your cash receipts every day to save on overdraft costs.
  11. When you can go for discounts, providing it does not run you short of ready cash, bargain for as much discount as you can.
  12. Some kind of survey or investigation is necessary even for the smallest business operation because studies can be the safest way to ensure you make profits or avoid going broke.
  13. Three most important things in retailing are: location, location and location. May we suggest that even more important than location is timing and good financing.
  14. Never have 3 directors (inclusive of you as founder) in your private company if at least 1 of them is not a close member of your family (wife etc) as you must always have 2 votes. You must never allow yourself to be outvoted by outsiders in your own company.
  15. Don’t go broke giving credit. Be tough on giving credit to new customers.
  16. Never bring new Franchisees into your franchise business simply because they have the money. They must be fully assessed and qualified for suitability. If they do not have the experience or the qualifications to run one of your franchise outlets think twice before taking them on. Franchisees can be a huge headache and they can cause you big problems if you pick them simply because they have the cash even if it’s the cash you desperately need.
  17. Watch your cash flows, improved cash collection leads to increased profits because these funds are invested to provide a greater return or to reduce borrowings.
  18. Keep your eye on the break-even point because your business is only as solid as its ability to survive on reduced turnovers or profit margins.
  19. Look after your reserves because if there is one thing that small businesses can learn from big business, it is the art of survival during economic slump.
  20. You can get caught in most business traps by inexperience but losing money or going broke by failing to keep the books up to date, is an act of commercial suicide.
  21. Because many businesses have large sums of money tied up in fixed assets such as land and buildings etc, always review your fixed assets with a view to possible cost savings and more efficient financing.
  22. Watch your health in business because high blood pressure, like all diseases, has their favourite targets.
  23. If you have 3 or more directors in your company always make the bank account signatories yourself alone or yourself with a director you can totally trust (such as a close member of your own family). Never allow the account to be any 2 signatures that excludes yours. Never give the other 2 directors authority to the bank account without your signature. If they can control the bank account they can control. Keep control of the cash at all times.
  24. Always check business profitability by having checks of performance against your budget calculations.
  25. Ensure that you send out your invoices either on time or early if possible for better collections. Analyse the cost to you of people paying late and try adding a small surcharge to late payers to discourage them.
  26. Watch creeping costs in matters such as deteriorating stocks or staff not doing anything etc.
  27. Do not give free shares to staff or managers until they have been in the business for a suitable time (12 months) and they have proven themselves to be reliable and trustworthy.
  28. Always view taxation as a business cost and ask yourself the question: “Have I planned how to minimise my tax cost?”
  29. Never promote staff or managers until you are happy with their personal character. The character is the true person. Character is what a person is really like when no one else is around or can see them. Character never lies. Always promote to character.
  30. Research has shown that people who skip breakfast make more errors at work.
  31. Watch that you are not incurring excessive costs through the deterioration of capital assets because of inadequate maintenance and replacements being made at the wrong time etc.
  32. Much tax savings can be had by ensuring that proper year-end tax planning is being carried out.
  33. Draft a Constitution for your company that sets you (the founder) as the Governing Director with full powers to dismiss or engage directors at any time at your discretion. Any directors that show any signs of working against you or undermining your authority should be replaced otherwise they will work to divide and cause division in your business.
  34. As far as security is concerned always light up the areas used by your staff and visitors at night and make sure that you design your entrance way so that everyone has to be vetted by your receptionist.
  35. Business, like politics, is the art of the possible – it is vital to have a realistic assessment of your abilities and intelligence.
  36. Remember that if your employees know that you are dishonest this will encourage them to be dishonest and if they know you are swindling someone else, they won’t be worried about swindling you.
  37. Many businesses tend to hold too much stock for fear of running out, but if they plan their stock levels correctly there are great savings to be achieved through reduced warehousing, insurance and obsolesce etc.
  38. Owners of businesses should have a greater number of short breaks during the year, rather than one big long holiday because the work load demands usually require that they be not absent from business for long periods.
  39. Make sure that you are receiving a good return for the long hours that you put in, because if after a number of years you find that this is not the case, ask yourself whether it is all worth it.
  40. It is fairly common practice to do credit checks on your customers but have you ever considered doing credit checks on the opposition? This can give you some very good information and insight into their financial standing.
  41. Because creditors form a big part of your working capital usage make as much effort as possible to use your creditors to aid in your cash position.
  42. Always ensure that your stock is valued at the lowest value permitted for tax purposes as this can make a big difference in calculating profit subject to tax.
  43. Watch the effect of inflation on your sales figures and costs because in times of high inflation the profit which results from the difference between the sale figures and costs incurred in producing those sales are distorted.
  44. High on the list of business problems are the number of small operators who remain office bound – they sit in the office worrying about the high overhead cost without realising that they are often the most expensive item on that list.
  45. The old maxim of “goods well displayed are half sold” can best be demonstrated by watching the display manager doing his rounds in a large department store.
  46. After the post mortems are held on businesses that go broke, it has been said that a high percentage show that incorrect costing was the cause – one mistake can wipe you out.
  47. No matter how much your business is booming with big profits rolling in, always keep a firm grip on your overhead costs, particularly items of a fixed nature.
  48. Work with your opposition because research has shown that opposition can mean increased business for you – some have found that sales increase sharply when a rival business opens up across the road.
  49. Whether you employ one person or fifty you must be constantly aware of your responsibilities to your staff.
  50. High on the list of business problems are the number of small operators who remain office bound – they sit in the office worrying about the high overhead cost without realising that they are often the most expensive item on that list.
  51. Although you may have chosen the right time to go into a business always be clear and know the important time to get out if necessary.
  52. Don’t be too keen when getting quotes because experience will teach that the lowest quote for the job often ends up the most expensive.
  53. Price is important but quality and efficiency of the service counts just as much.
  54. High on the list of business problems are the number of small operators who remain office bound – they sit in the office worrying about the high overhead cost without realising that they are often the most expensive item on that list.
  55. In a small business it is essential that you know just as much about the techniques of buying as of selling.
  56. When a restaurant goes broke it proves that this is one sector of small businesses which suffer more than any other from lack of complains – unsatisfied clients simply stay away.
  57. For business beginners, never skite about how much business you are doing – you might encourage opposition.
  58. If a project is failing you are unlikely to have enough time to clearly think out your course of action. If you have already formulated a plan then you are likely to get out of trouble with far fewer complications or you may even put the ship back on to an even keel.
  59. Tomorrow is another day so keep positive. It was President Roosevelt that said – “When you come to the end of your rope, tie a knot and hang on.”
  60. Finally Never Quit – ever. If you don’t quit – you’ll make it.