Partner at BDO Limerick, Diarmuid Hendrick says survival is the new success in business. In this article he sets down the top 10 tips to surviving the ongoing economic challenges.
The past five years have been extremely challenging for businesses. BDO Limerick has, and continues to work with clients to ensure their business survives and adapts to the new economic climate. The following issues are of critical importance to businesses as they continue to react and respond to the changing economic landscape:
- Differentiating between profits and losses and cash is key to any business. Cash is the real indicator of how a business is performing regardless of profits or losses in a given period. Prepare monthly projected cash flow forecasts giving a clear indication of the business position. Be able to project where you will stand three months in advance.
- Manage debtors effectively. Being tough with customers may be unpleasant, but it’s an important safeguard against the effects of the recession. Assess the credit-worthiness of all customers. If you are a small business employing a credit controller for a number of hours per week, it will indicate to customers that you fully expect payments to be prompt and that drawing out the payment process is not to their benefit.
- Look at the different areas of your business and assess the viability of each in the current climate. Monitor the different areas the business operates and explore which are viable in the long term. If there is a product or service that is no longer economic to provide, drop it and continue with more popular ones.
- One major issue for efficient cash flow management is excessive cash resources tied up in stock for resale or production. By monitoring sales week by week, a business should be able to gauge whether they justify the stock levels held.
- Extending borrowings should be considered seriously and investment undertaken only if the capital expenditure cannot wait until the economy has recovered. Talk to your bank early to see if you can negotiate better repayment terms on loan and leasing obligations. Review the financing of each section of the business for example stock finance and debtor finance to ensure that the business is maximising finance.
- Negotiate with suppliers for better prices or short-term reductions. If a cash shortage has arisen talk to creditors about additional credit terms.
- Review all overheads with a view to scaling down until economic conditions improve. Look at fixed and variable costs. What among the variable costs can you cut back on or put off for later? What among the fixed costs can you find a better deal on or negotiate more favourable terms for?
- Review your staffing levels as this is a critical area. Salaries/wages are one of the largest costs of doing business. Therefore, any reduction in the hours worked through work practice changes or lay offs has an immediate cost saving benefit. However be careful that reducing staff does not impact on customer service and quality.
- Seek outside assistance. Use your accountant or financial advisor to assist in a review of your business to ensure that it is in the best position to deal with a slowdown.
- Remember, survival is the new business success.
BDO Limerick continues to work with clients helping them to adapt to the changing economic climate. Contact us today for a free no obligation consultation.