Understandably it's not unusual for a business owner to ask me how to make more…
The media are doing their thing at the moment and trying to convince us of impending Armageddon. However, whether we like it or not we are currently experiencing a high degree of uncertainty, so giving some thought to what you’ll do if things really do turn to custard is probably not a bad idea. Brexit aside, the economy moves in cycles and one thing is for sure, we will hit another ‘economic winter’ at some point and those who are prepared stand a much higher rate of survival.
So how should you prepare your business for a downturn? Here are a few ideas:
Once a company starts losing its bearings and gets carried away by stormy economic tides it is difficult, if not impossible to get safely back to shore. Financial indicators are essential, without them business owners may never see hard times coming and can have their cash reserves wiped out without warning. Those who do employ easy to read and understand metrics, benchmarks, and other tools for testing and evaluating performance are in a way stronger and more informed position.
Understand the Difference between Response and Reaction
Reacting to situations you are not prepared for can lead to knee-jerk actions that are neither thoughtfully conceived nor efficiently executed. Never rest on your laurels and be prepared for the unexpected. Remember “Prior Planning Prevents Piss Poor Performance”!
Choose your Products and Services with Care
During the gold rushes during the 19th century whilst a few prospectors made their fortunes most lost the shirts off their backs. However it was the people selling mining equipment, accommodation and alcohol who made the serious money. Think about your products or services, some will likely be more profitable than others, perhaps you can add additional lines to reflect a changing market?
Indispensable Products and Services are Recession Proof
Many years ago when I first got into business I was given some good advice by a seasoned and successful businessman; “Never underestimate the value of women’s vanity” was one of his gems! Without wishing to get into a sexism debate I have actually witnessed this during my career, however I use this example to demonstrate that many products and services are not effected during downturns, are you or can you offer any?
Always Wallet Share versus Market Share
Forget your ego and stop chasing market share. Focus solely on wallet share i.e. getting cash in the till. Also ensure you understand your client acquisition cost and lifetime value. Remember “Turnover is vanity – profit is sanity”.
Make sure all your time and effort is being focused in the right direction, that is on activities that are making you money and providing cash flow.
Cash is King!
Yep, it’s a well used phrase but it’s so true. If you have little or no cash reserves or weak cash flow whilst times are good then you’re going to be skating on very thin ice when the next downturn hits. Remember it’s lack of cash that kills businesses NOT profits. Recessions also throw up great opportunities that you’ll want to take advantage of and cash in the bank will help you grab them.
Bringing this to a close it’s occurred to me that these are actually good business practises to have in place whatever the economic outlook! But rest assured with around 94% of businesses failing to reach their 10th birthday preparing for all eventualities is essential.