Although expert opinions vary and there are already ‘green shoots’ of recovery in certain areas, the business environment looks set to be turbulent for some time.
What does this mean for you and your business? Now is the time to be strong. Maximise your chances of success by paying proper attention to the financial needs of your business.
In Favour of Flexibility
Don’t lose sight of what you are trying to achieve; stay focused. In a changing economic climate, be prepared to be flexible and ready to adapt to whatever life throws at you. It is really important for you to take steps now to make sure your business is in good shape. This will help you become leaner and more efficient in the future.
You may have to adapt your products or services, or diversify. Take a close look at each of your products and services and eliminate those that are unprofitable or not core products/services. Are there any strategic alliances you could form with another business? Are there any additional services/products you could offer? This may be a chance to widen your appeal or attract a different business audience.
Review every cost in your business. Is each one necessary? Are you getting the best value for your expenditure? Explore new avenues and shop around.
Cash is king (and queen)
It is essential that you maintain accurate, up-to-date information about your bank balance. Monitor your cashflow on a daily and weekly basis.
Review your debtors regularly. Who owes you money? Chase up any overdue invoices immediately. Continue to follow up politely and persistently. Review your client contracts and terms of business. Do they contain explicit payment terms? Ensure your sales invoices are correct before they are issued as this can cause unnecessary delays in payment. Put in place a formal debtor management system and stick to it.
If some of your customers are suffering in this unstable environment, they may start to delay payment to you. This, in turn, may mean you are unable to pay your suppliers on time. If you think it is appropriate or necessary, now is the time to speak to your suppliers and try to agree extended payment terms with them. If you communicate with your suppliers in advance, you will probably be able to maintain a good relationship with them in the future.
Why not review your banking facilities? Arrange a meeting with your bank manager. Are you able to negotiate lower bank charges? What can the bank do to help you? If you think you will need an overdraft facility, it is well worth discussing this in advance so that everything is set up before you actually need to use it.
If you are worried about being able to meet tax payments, HMRC has introduced a business payment support service, designed to meet the needs of businesses affected by the current economic conditions. Don’t wait until your payment becomes overdue. You can find more information on the HMRC website at www.hmrc.gov.uk .
It is more important than ever to maintain your relationships with your customers. Are you doing enough for them? What are your competitors offering? Does your service/product compare favourably? Your clients may be looking around for better value or enhanced services. Put extra effort into making sure your relationships are solid. This doesn’t need to cost the earth. A simple thank you card to current clients thanking them for their business or for a referral is a simple touch but will be appreciated. Ask your clients what is important to them right now. Can you provide what they are asking for?
One Step Ahead
Are your targets realistic in the current business environment? Set your budget and closely monitor your actual results against it regularly. If you are not meeting your targets, you need to be alerted to the fact immediately, so you can take any necessary action.
It will help if you establish some key performance indicators (KPI’s) for your business and measure them on a weekly basis, for example:
- Number of sales leads generated
- Orders supplied/fulfilled
- Bank balance
- Debtor Days
- Gross Profit
- Net Profit
You need reliable, timely and accurate information on which to base strategic decisions.
Although the business environment is uncertain, it’s certainly not all doom and gloom. This is an ideal time to get back to basics, review the processes within your business and focus on staying one step ahead.
About the author: Kay Daniels. Kay has twenty years’ accountancy experience across a variety of sectors. She is the founder and managing director of Daniels Accountancy, based in Ealing, West London. Daniels Accountancy provides bespoke accountancy and business support to its clients. To subscribe to their free newsletter, visit www.danielsaccountancy.com