Finance
Two types of businesses fail during economic downturns. The first are businesses that are not strong enough to withstand changing market conditions, the second are essentially sound businesses whose ability to survive is undermined by poor management.
While individual businesses cannot control the course of economic events, it is possible for management to adopt a strategy that goes some way towards controlling their own destiny. In the latest annual PricewaterhouseCoopers CEO survey, over 60% of UK chief executives viewed the ability to adapt and change as a critical source of competitive advantage in sustaining long term growth.
Using this time of uncertainty to take a fresh look at your organisation’s strategy and carrying out a detailed and up-to-date analysis of your business practices can give you a better understanding of where your business stands and be a critical element in anticipating and addressing market change. Focusing on cash, stakeholder management and effective scenario planning, and addressing some of the areas highlighted below can make all the difference in surviving the storm as well as help the business to emerge from the downturn in the best possible shape.
1. Cash is king:
Many companies will face financial pressure during the economic downturn, yet now more than ever good cash flow is vital. Managing cash during a recession should be an every day priority with emphasis placed on tight control and clear, accurate, short term forecasts. Businesses that don’t manage cash as a priority ultimately may not be able to pay their liabilities and consequently risk being forced into some part of an insolvency process.
2. Your new banker:
A number of the leading banks can show statistics that their new lending to SMEs has increased rather than reduced. However, you need to remember that the risks they are assessing at this time are greater and, understandably in the current environment, profitability and liquidity forecasts are down and security is by definition poorer. Any help available will come at a price. Treat your bank with caution and respect and ensure your credit applications are as robust as possible because however long and cordial your relationship, your interests may not be entirely aligned.
3. Your new taxman:
For many small businesses, tax is an area where some slack from cash flow challenges may be available. Your taxman is under instructions to be more understanding - and in practice, HMRC is saying ‘Yes’ to well thought-out requests for deferral of tax payments. In many cases, a few simple tweaks to the business’ administrative arrangements can also defer the tax bill significantly.
4. Watch the supply chain:
However skilful and careful a climber, his fate is linked to whoever else is on the rope. Without insurance cover, the key to managing the risk of loss through the failure of major trading partners has to be tight control, communication and prompt action when problems arise. You need to take a hard look at who you are linking your fate to. If you are not comfortable, address the issue before there is a problem.
5. Value your people:
However robust the business, this is a worrying time for your employees. You can’t change that, but you can help. Never has communication been more important. Rest assured that the rumour mill is in full operation, filling in any gaps you leave – usually negatively. Your messages need to be honest, clear and realistic. Show your commitment to the business, but do not make promises you cannot keep. If you have bad news, share it promptly. The length and severity of any downturn is uncertain, which makes business planning difficult. Endless scenario planning can be of limited value, but with a focused approach, a business can establish the extent of its operating headroom. A company should have three scenarios; a best guess outcome, one modelling 10-20 percent downside and a ‘bank payout’ situation. This kind of planning can help improve a company’s agility. As market conditions change, if the analysis has been done ahead of time, a company can implement its strategy more quickly and gain a competitive edge relative to its peers – an important consideration for the eventual upturn.
That recovery, however, is unlikely to be swift. Companies face a hard grind, not just this year, but stretching into 2010. Faced with this tough outlook, it is vital that companies take action now to control their own destiny.
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While individual businesses cannot control the course of economic events, it is possible for management to adopt a strategy that goes some way towards controlling their own destiny. In the latest annual PricewaterhouseCoopers CEO survey, over 60% of UK chief executives viewed the ability to adapt and change as a critical source of competitive advantage in sustaining long term growth.
Using this time of uncertainty to take a fresh look at your organisation’s strategy and carrying out a detailed and up-to-date analysis of your business practices can give you a better understanding of where your business stands and be a critical element in anticipating and addressing market change. Focusing on cash, stakeholder management and effective scenario planning, and addressing some of the areas highlighted below can make all the difference in surviving the storm as well as help the business to emerge from the downturn in the best possible shape.
1. Cash is king:
Many companies will face financial pressure during the economic downturn, yet now more than ever good cash flow is vital. Managing cash during a recession should be an every day priority with emphasis placed on tight control and clear, accurate, short term forecasts. Businesses that don’t manage cash as a priority ultimately may not be able to pay their liabilities and consequently risk being forced into some part of an insolvency process.
2. Your new banker:
A number of the leading banks can show statistics that their new lending to SMEs has increased rather than reduced. However, you need to remember that the risks they are assessing at this time are greater and, understandably in the current environment, profitability and liquidity forecasts are down and security is by definition poorer. Any help available will come at a price. Treat your bank with caution and respect and ensure your credit applications are as robust as possible because however long and cordial your relationship, your interests may not be entirely aligned.
3. Your new taxman:
For many small businesses, tax is an area where some slack from cash flow challenges may be available. Your taxman is under instructions to be more understanding - and in practice, HMRC is saying ‘Yes’ to well thought-out requests for deferral of tax payments. In many cases, a few simple tweaks to the business’ administrative arrangements can also defer the tax bill significantly.
4. Watch the supply chain:
However skilful and careful a climber, his fate is linked to whoever else is on the rope. Without insurance cover, the key to managing the risk of loss through the failure of major trading partners has to be tight control, communication and prompt action when problems arise. You need to take a hard look at who you are linking your fate to. If you are not comfortable, address the issue before there is a problem.
5. Value your people:
However robust the business, this is a worrying time for your employees. You can’t change that, but you can help. Never has communication been more important. Rest assured that the rumour mill is in full operation, filling in any gaps you leave – usually negatively. Your messages need to be honest, clear and realistic. Show your commitment to the business, but do not make promises you cannot keep. If you have bad news, share it promptly. The length and severity of any downturn is uncertain, which makes business planning difficult. Endless scenario planning can be of limited value, but with a focused approach, a business can establish the extent of its operating headroom. A company should have three scenarios; a best guess outcome, one modelling 10-20 percent downside and a ‘bank payout’ situation. This kind of planning can help improve a company’s agility. As market conditions change, if the analysis has been done ahead of time, a company can implement its strategy more quickly and gain a competitive edge relative to its peers – an important consideration for the eventual upturn.
That recovery, however, is unlikely to be swift. Companies face a hard grind, not just this year, but stretching into 2010. Faced with this tough outlook, it is vital that companies take action now to control their own destiny.
<- Back to Finance list
