Simple ways to recession proof your business

IT might feel like all you want to do is hide under the duvet with a year’s supply of chocolate and a games console, but surviving a recession is possible.

Even if the factors bringing about this current economic cloud of doom are somewhat unprecedented not all hope should be abandoned.

For those who only have a dim memory of the late 80s meltdown and subsequent early 90s slump the term “recession proofing” will be unfamiliar. But it’s a golden oldie set for a chart topping return.

Although most rules of business will still apply, certain disciplines will need more attention while others will require a complete rethink and a breaking with traditions. How you achieve in creating or bettering value added services, value for money, lean manufacturing, process control, and enterprise-wide transparency will present different challenges to different sectors but the message is essentially the same. Do or die.

It’s during times like these that owner/managers need to start thinking “outside the box” when it comes to cost-saving initiatives. Compromises and/or sacrifices will need to be made as businesses work hard to achieve sustainability.

For example, joining a car club such as Leeds-based WhizzGo, which charges on demand car use on an hourly rate, can help save on unnecessary costs and reduce carbon footprints.

The company, which was established in 2004, now has more than 5,000 members across the UK and is the largest car club outside of London. The company claims that by eliminating the cost of petrol, servicing, tax and insurance annual savings of up to £3,500 can be made.

However, innovation isn’t enough on its own. Good management and strong leadership are still essential to ensuring a business has a chance of survival in a downturn as Mike Willett, a senior manager in corporate recovery at PKF in Leeds, explains.

“The current economic climate looks set to continue this year, and organisations will need to take a focussed approach to cash management in order to remain in a strong position,” he starts.

“Planning and open communication with funders and key suppliers are key for businesses in 2009. Cashflow and overheads should be reviewed on a regular basis, and any problems should prompt early seeking of professional advice, as necessary.

“Implementing an internal review of business performance, including sales levels, gross profit, overhead costs and especially cash management, could highlight a number of cost saving opportunities.

“Businesses need to look carefully at their cash flows in particular, to assess where improvements can be made. They should also increase the speed of receipts from customers and, wherever possible, pay creditors on time to ensure availability of essential supplies. Preparing a cash flow plan, however brief, will assist in organising the current and future financial situation of any business and assist planning for future receipts and payments more effectively throughout the year.”

Neill Rayland, audit partner at Kirk Newsholme, chartered accountants and business advisors, also feels that high quality financial management is now an essential priority for SMEs given the current economic conditions and shortage of credit.

“It has never been more important for businesses to maintain financial records that are good enough to determine where they are today and to prepare and maintain financial forecasts that consider alternative scenarios, especially a ‘plan B’,” he says.

“Businesses should be aware that financiers are becoming increasingly demanding in terms of the amount and quality of financial information they need to support facility renewal reviews. They should not only be making sure that their terms of business are well communicated and contain explicit payment terms, but that they have systematic follow up procedures in place so that their customers know they are serious in enforcing them.

“Firms need profitable, paying customers and so should be carrying out credit references, putting in extra effort to making sure that their relationships with their better customers are solid whilst dispensing with customers that either can’t or won’t pay.”

Cleckheaton-based accountancy firm Clough & Company has prepared an action plan checklist called Trading Through Tough Times’ for SMEs advising them how to best prepare and survive the recession.

Below are some of the key tips the company’s managing partner Steven Gash suggests SME’s should follow:

• Given the change in conditions, review your budgets and set targets accordingly for 2009.
• Get the whole team together and explain your firm’s strategy and get their  opinion on what you’re planning. Not only will this ensure staff feel involved and valued but their feedback may prove insightful and of great use.
• Involve your team in a discussion on the likely trading conditions and get their input for reducing costs and maintaining revenues. Then use ‘bottom up’  budgeting, where everyone advises on areas within their control and target a specific cost saving.
• Establish your key performance indicators and measure on a weekly, if not 
  daily basis.
• Review your portfolio of products or services and eliminate those that are not    
  core or profitable.
• Review your debtors list and put extra effort into chasing overdue invoices.
• Put extra effort into building and maintaining strong relationships with your clients.
• Cut your ties with customers who can’t or won’t pay. This will save the extra  
  resource and time that is often needed to service such clients.
• Agree extended payment terms in advance with suppliers – most will be  
  amenable, providing you are upfront and honest.
• If appropriate, review your current banking facilities and discuss your future
  needs with them.

With economic recovery predicted to be a long way off, not all businesses will survive however well run or managed particularly if the banks’ unwillingness to lend doesn’t change and government initiatives such as the recently announced £20bn assistance package simply aren’t enough. But ensuring that certain principles are adopted SMEs have a fighting chance that they’ll see the downturn though to the other side.