For most businesses times are hard. With inflation rising, difficulty obtaining products and services and a very real labour shortage it can feel as though everything is against the business owner.
But talk to people who have been through this before and you’ll find that actually when times get tough, great businesses really do get going.
So if you think that you are under siege what should you do to get your business moving again?
In this post, we want to give you some practical tips from real-life experience that will help you weather the storm.
We are looking at;
- Don’t hunker down
- Stay agile
- Develop your environmental scanning
- Stay on top of your numbers
- Cash Cash Cash
- Cherish your customers
- Cherish your suppliers
- Cherish your people
- Don’t race your competitors to the bottom
- Where to start
Don’t hunker down
The obvious response to difficult trading conditions is to simply pull up the drawbridge and hunker down.
Typically businesses will reduce their workforce, stop marketing and remove employee benefits as a way to get through the tough times.
But this is a big mistake.
If you treat your people badly, they’ll leave or become demotivated, your customer service will suffer and so will your sales.
If you stop marketing then turnover will reduce, and so will profitability and you’ll need to cut more.
The academic evidence shows that the companies that were careful but dynamic did much better than their peers who tried to hibernate.
If you’re a smaller business then you have a big advantage over bigger enterprises – you can stay agile.
If you are agile then you can respond to customer needs much quicker, you can snap up competitors who are going out of business or you can do a 180 pivot and completely change your business model.
Your agility is the biggest weapon in your armoury so make sure you are always willing to use it.
Develop your environmental scanning
Environmental scanning is simply watching what is happening in a more formalised way.
What do you see on the news? What is happening to the economy? What are your suppliers saying?
Environmental scanning helps you to build up a knowledge base that improves your decision-making and, allied with your natural agility gives you a real competitive advantage.
Stay on top of your numbers
We would say this one, wouldn’t we?
But seriously, if you don’t have a handle on your numbers then you can’t possibly make the right decisions at the right time.
And a word of advice here – don’t wait until the end of the year for your accountant to tell you what happened by looking in the rearview mirror.
Instead, get your numbers at least monthly and make sure you have enough depth to really drill down and find out what is going on.
Cash Cash Cash
We can’t emphasise this enough. Make sure you have plenty of cash.
Two reasons for this, one negative and one positive.
Negative first:- if you have cash in your bank then you can pay your bills as they are due and you aren’t going to go bust. Pay attention to credit control and make sure you don’t give lots of credit to shaky customers.
Now the positive: – if you have cash in your bank then you are able to take advantage of any opportunities that may come your way. Maybe it is a consignment of stock that can be bought cheaply or even snapping up a competitor or supplier that is in trouble.
Cherish your customers
It seems a sensible decision to reduce or even remove customer service or sales staffing but this is a bad move.
Customers will value companies that treat them well. Let’s face it we can all find a company that will treat us badly but how often do we get really good service?
Providing great service to your customers will mean that they stick by you, even when times are tough.
Cherish your suppliers
If you have a great supplier then make sure you get close to them.
If you are stuck for cash then they may give you better credit terms or reduce prices.
If you want to do a special promotion then they may provide limited edition goods.
And if you want to run extra marketing campaigns then a friendly supplier will often be happy to contribute.
Cherish your people
People are the lifeblood of your organisation and when the labour market gets tough then people tend to look around.
Don’t rely on just giving people a pay rise. Actually, people value being included in the conversation, having a clear career plan or feeling like they are an important part of something big much more than money.
Say a genuine thank you to your troops once in a while.
Don’t race your competitors to the bottom
It can be a massive mistake to think that when times get tough you have to reduce prices.
A race to the bottom never ends well and if you are picking up customers who are only looking for the cheapest price then they will switch suppliers as soon as a cheaper one comes along.
If you reduce prices you reduce profitability and that means you have to sell a lot more to make it worthwhile
Take a look at the panel below.
Here we can see the effect of both reducing or increasing your price from a base of £50 per unit.
We’ve made an assumption that a 10% reduction in prices results in 10% more sales and vice versa.
What we see is that reducing prices, even if they increase sales by a whopping 10% would actually result in a lower net profit.
In fact, you’d have to sell 25% more units using our example to earn the same amount of money as the base case scenario.
So be careful about racing to the bottom.
Where to start
The first thing to do is to get a hold of your numbers. If your current accountant isn’t massively helpful in this respect then give us a call!
Secondly, analyse your customers. Who are the most profitable? Who always pays on time? Who has been the most loyal? Then cherish them.
Speak to your people and explain the current situation to them. You don’t need to scare them but at the same time, you do need to be honest. You could be surprised at the ideas that your team will come up with.
Get a cash flow forecast and keep it up to date, again, your accountant should help you with this or alternatively call us now.
Understand the profitability of each product or service. You may find that you are selling something that is losing money.
Start environmental scanning. Listen to gossip at the wholesalers or at a trade show. Be ready to take advantage of opportunities.
If you implement our tips you’ll be in great shape to weather the storm.
Most accountants are great but if you find you aren’t getting the proactive help you need then maybe it is time to look around.
We are experts in helping companies large and small understand their numbers and work out how to drive value and growth.
Call us now and let’s have a chat.