Here are our 8 top tips to help you be as prepared as possible:
1. Check you have a robust credit control process in place
The risk of customers delaying payment – or not paying you at all – is significantly increased in difficult times. So make sure you have a robust process in place to improve your chances of getting paid on time, every time.
If you don’t already run credit checks on your customers, now may be the time to start doing that.
Also, be firm and business-like about not letting any lagging accounts evolve into bigger problems. If a customer is already delaying payment to you, don’t sell them more until they’ve paid for the last order – if you do, you’re setting yourself up for an even bigger bad debt risk. You have to remember that when you offer credit terms, you’re actually lending people money.
Get a robust credit control process in place today by working through our free 11-point checklist.
2. Get your costs under control
Take a close look at your overheads and costs – and make sure that each cost is earning its keep.
What could be reduced or even cut completely? Can you get a similar quality product or service cheaper elsewhere? Outsourcing (or insourcing, as we call it) is always an affordable way to make sure you’re only paying for the services you actually need, with none of the management costs or tie-in – and services can flex as your business needs change. Look at every outgoing from every angle.
If you identify areas where you could streamline costs, act swiftly. But be very mindful of not rushing to cut costs rashly – you still need to be able to do business. If you cut services that actually add value to your business operations, it may hold you back rather than keep you going.
Also, keep in mind that a recession, however troubling or unsettling, is temporary. So make sure you’ll be able to scale back up in an efficient and effective way when the time comes…
3. Maximise your profits
Take time to delve into your numbers and ensure you’re squeezing everything you can from what you have. Keep a weekly track of your KPIs and metrics – watch for downturns in trends, and don’t brush them off.
Make sure you understand what aspects (clients, products/services) of your business are the most profitable – and focus your energy there.
Even more importantly, identify the areas where you’re not operating efficiently – and allocate your resources accordingly. Perhaps you have clients who aren’t as profitable as others, or you need to review staff efficiency levels or sales conversion rates…
If you need some expert help with this aspect of analysing your finances, making the decision to invest in appropriate specialist support will likely pay for itself. Find out more in our guide on How to increase your profitability.
4. Optimise your operations
Now is a good time to review how you do what you do – and to find opportunities to streamline and optimise your operations.
This might be using your KPIs to increase your sales conversion rates or tracking and improving your staff costs to sales ratio.
In good times, it’s easy to fall into a mindset of complacency (not you necessarily, but your team perhaps), and to not invest in keeping up to date with best practice or functionality improvements in your accountancy software and systems. Or maybe even finding those smarter ways of working…
“We’ve always done it this way” is never a great option in good times, let alone when you need to be nimble and economic pressures are a little tighter.
Read more here about how you can streamline your finance function or better use your accounting system.
5. Forecast and optimise your cashflow
Remember, forecasting is your friend and cash is king! This is true at all times, but especially during difficult trading conditions.
So make sure you know what your cashflow looks like for at least the next 6 months. And keep your cashflow forecast current – it’s not a ‘do it once then ignore it’ job.
Get smart about how you pay your bills too. Use any credit facility you have available cleverly – but fairly.
If the worst comes to pass, and you think you may have an issue paying a creditor, don’t just ignore them. Always speak to your creditors and work out an agreement.
Equally, don’t hold off on paying your suppliers for no reason. That behaviour makes the situation worse for everyone and often escalates the economic downturn unnecessarily. You need your key suppliers on your side – whatever the weather.
6. Plan for the worst case scenario
Forewarned is forearmed. While nobody knows for sure what the next few months and beyond look like or how high inflation will rise, we all have the capacity to help prepare our businesses.
Rather than crossing your fingers and hoping for the best, work though a Plan A and Plan B (and possibly a Plan C too) based on different possible scenarios. That way, you’ll be prepared for most eventualities and will be able to make informed decisions no matter what happens.
The best bit of taking this action is that you’ll probably also come up with some great ideas you can implement anyway!
Learn how to start preparing scenario plans by reading more about how to plan for uncertain times.
7. Look out for opportunities
Keep your eyes and ears open to opportunities to secure your position in your marketplace.
Keep talking to your competitors and keep abreast of events in your industry. Maybe a competitor is open to collaborating and you’d do better working together, rather than against, each other.
Or perhaps you can diversify your products or services – potentially through product development or innovation or perhaps through an acquisition or merger.
8. Keep investing (in the things that work)
When everyone else is cutting marketing spend, you often find those businesses that come out the other side in a better place than their competitors are those who have been canny around their marketing investments.
The irony is that at a time when they need more enquiries, many businesses often cut marketing costs hard and quickly. Smart business owners, however, will always make sure they don’t cut off all the activities that generate more opportunities.
Be prepared – to put your business in the best possible position
However potentially troubling or unsettling it may feel when it’s looming large, any period of recession is a temporary (and natural) occurrence within the economic cycle. There are a number of actions you can take to help your business prepare for the prospect of uncertain trading conditions.
Things will be less daunting if you’re in control of your finances and know where you stand. There is help available, so don’t put yourself under unnecessary pressure and endure sleepless nights when you could reach out for the specialist support that would give you peace of mind.
There is also no right or wrong answer to how to react. What’s right for one business will be completely the opposite for another. Sometimes, not just blindly following the other sheep could keep you ahead of the rest of the herd.
Getting the help you need doesn’t need to cost the earth. Start by exploring all our free resources – and know we’re always happy to have a call to see where we may be able to help.
If you’d like to check where your business stands right now, why not take advantage of our Finance Function Healthcheck? We’ll give your business a thorough finance healthcheck and deliver a bespoke report with our findings, recommendations and a personal roadmap.