Protect the bottom line
RUTH BAYLEY, managing director of a small family-run training business in Canberra, is not panicking about the economic downturn. She's spent time carefully analysing her business strategy, fine-tuning her costs and strengthening her market position and believes she will succeed.
"When times get tough it will be businesses with a strong and trusted reputation that survive. My aim is for Bayley and Associates to be one of them," she says.
Already her company has taken measures to shore up existing clients' business, offering incentives to encourage them to book for next year's training now.
She's also negotiated reduced prices with some of her contractors, savings she's in turn passed to clients. She's also streamlined and reduced the length of her training courses - so companies and government departments get quality training that costs them less man-hours.
Anthony Moss, a director of business performance consultants Incite Management Group, says in the current economic situation, small and medium-sized businesses should review every aspect of their business to maintain profit margins and cash flow.
"The challenge to all SMEs is objectivity, not to have a knee-jerk reaction," he says. "Companies need to get the current climate in perspective and analyse how they might be affected by it, potentially by reduced sales and higher costs."
The downturn also may offer situations where companies can differentiate themselves from their competition.
He suggests SMEs should review their business plans, assess their budgets and factor in several potential scenarios.
"Most companies go out of business because of a lack of cash flow. Cash is king," he points out.
Many businesses are currently being hit with price increases from their suppliers, so they should take this opportunity to review all contracts and renegotiate them where it is possible.
Moss says: "Leverage your long-term relationships and find solutions that are win-win to both of you."
Also companies should look for an alternative list of suppliers to ensure security of supply and ways to use competitive pressure to minimise price increases.
Businesses will also need to look for ways to improve productivity, he says.
"In times like this, businesses must guard against a siege mentality, pulling their drawbridges up and cocooning themselves."
It's a chance for businesses to asses internal systems and processes to cut their wastage and inefficiencies.
He says they should also still invest in technology where possible, keep plant equipment up to date, while ensuring staff morale remains positive
Chris Hope, business services partner with accountancy firm Pitcher Partners, warns against cutting to the "bare bones" of a company or growth will be stunted and the company risks falling behind competitors.
"Businesses must still incur costs to generate revenue," he says.
Ways to generate cash he suggests, include "sale and lease-back" of assets such as plant equipment, furniture and vehicles.
Also banks provide "debtor factoring" services when they pay you cash against your debtors' balance for a small fee and take responsibility to collect the payments from customers.
Instead of static budgets, Hope advises companies to have detailed rolling budgets over three-month periods so that they are better able to cope with the unpredictability of the current crisis.
Meanwhile, Bayley is happy about her continuing level of business even as some government departments and corporations slash their training budgets.
"I'm having more success than I would have expected," she says. "Clients seem to have an eye for better value in these lean times and they are valuing our approach. In my 13 years in business this is not the first downturn I've seen and I'm confident we have the solid people, the staff to pull
Don't have a knee-jerk reaction
Analyse all your costs
Cut waste and inefficiency
Invest to stay ahead of the competition
Put systems and internal controls in place