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Recession proof your business

Is it possible to recession-proof your business? Probably not, despite the wealth of internet articles on how to do so (about 3.3 million hits on Google and counting).

However, what is possible is to arm your business with a series of simple and common sense business strategies to protect it against tough times.

There are defensive and offensive strategies. As profit performance heads south, it is difficult not to panic and begin to tighten all the hatches. However you can tighten too much. Hence, while it is natural to concentrate on the defensive strategies, it is important to keep in mind offensive strategies – those that your business should implement to ensure that you are the one in your industry that keeps selling when others are closing down.

Let us deal with the defensive strategies first. There are six strategies that you need to implement. These are:

1. Control your inventory
2. Retain your cash
3. Keep your receivables flowing
4. Cut your costs
5. Review your borrowing
6. Increase efficiency

First, control your inventory. Find out which stock items turn over quickly. Work out the number of days each stock item takes to turn over. Calculate economic order quantities (EOQ) for each stock item. Ensure you are only carrying your EOQ in stock or otherwise your profits may be sitting on your shelves.

Second, retain your cash. Cash is king. Where assets such as stock and capital investments or plant and equipment may have been good investments in times of growth, in times of recessionary influences, cash in hand is useful to take advantage of opportunities, save costs and make rainy day decisions. Focus on cash and cash transactions – how much does stock cost? Can you find a cheaper supply? Are discounts available? Are you carrying excess plant and equipment that can be sold? Can you lease instead of buying outright?

Third, keep the receivables flowing. Ensure that you are in constant communication with your customers, not only for offensive purposes as discussed later but certainly to be aware of their trading conditions. Do not get caught out by customers closing down while owing you money. Review your credit policies and ensure that they are followed. As soon as debts become overdue, call them and find out why. Offer discounts for early payment (without allowing margins to suffer significantly). Be prepared to cut customers who are using you as their bank.

Fourth, cut your costs. Review all your expenditure and ask yourself if any savings can be made. However a word of caution here! The answer must be in the light of maintaining trading positions. It may be clear that you can save costs by reducing telephone lines from 6 to 4, but if your business needs constant telephone contact with customers and all 6 lines are constantly lit up, reducing this cost merely restricts your trading model.

Fifth, review your borrowing arrangements. Most businesses have a medium term relationship with their bankers and financiers, that is, they arrange a loan and then fail to communicate with their bank until it is time to renegotiate. Instead, you should keep your information flow to banks open in case you need finance quickly. At the same time, review your arrangements – they may have been made some years ago when interest rates were high. See if borrowings can be refinanced or renegotiated.

Finally, the sixth defensive strategy is to increase efficiency. When times are good this may have been allowed to slip. Few businesses measure “efficiency” but it can be done. You can measure the efficiency of staff, of processes, of equipment. In a retail business how many customers do individuals serve a day? How long does it take you to receive an order and send it out?

Now let’s look at offensive strategies. It is not defence that will create a strong impression in the minds your customers. In order to clearly put your business in their minds and therefore seek their support through steady sales in tough times, you have to go on the offensive.

Offensive strategies need not be costly. In fact all the offensive strategies discussed here can be implemented without increased cost, by focusing on what you already do only doing it better.

There are also 6 offensive strategies:-

1. Increase marketing efforts
2. Focus on customer service
3. Diversify
4. Invest in winning employees
5. Innovate, innovate, innovate
6. Create partnerships

The first offensive strategy is to increase, yes increase your marketing efforts. The worst possible thing you can do when there is increasing competition for your customer’s dollar is to reduce marketing. As you reduce marketing your market forgets you.

This leads us to the second offensive strategy of focusing on customer service. Do not allow your customer to forget you. Give them value-added service without adding cost – faster delivery times, wider selections, keep up contact with them, offer after sales service and “frequent buyer” programs.

The third offensive strategy is to diversify. See if any products related to your current lines are more appropriate in tighter economic times – appliances that cost less to run, financial reviews by investment advisors, provide “packaged” services. Look at products and services that competitors are exiting from, especially where these leave demand unsatisfied.

The fourth offensive strategy is to invest in winning employees. Your people are often the first point of contact with the customer. By all means remove non-performers to make the business more efficient, but recognise and reward winners to ensure they stay with you, keep performing, and where necessary, pick up some of the slack from the losers.

Innovation, innovation and innovation is the fifth offensive strategy, and so important it has to be named three times! As much as marketing and customer service, innovation will keep you in the minds of the customers. Innovation may take the form of innovative customer service as well as innovative products. Use the latest technology to get your services or goods to market faster; use technology to keep in touch with customers; use innovation to improve processes.

Finally the sixth offensive strategy is to create partnerships. As businesses wind down, supporting one another is a good way to keep head and shoulders above the competition. Offer cross-selling with related or nearby businesses. For example, get together with the local restaurant and offer a dinner for two for every purchase above $200 (and the restaurant can offer a small gift collectible from your store for every bill above $200).

So, can you recession-proof your business? There is no guarantee but the implementation of simple and low cost strategies can increase your chances of survival, and more importantly ensure that when the recession ends, which it certainly will, you have not only survived but are ready to leap ahead.

Now it’s over to you? What have you done since the GFC? Share your experiences with us.

And if you really want to know all the tools, tricks, traps and resources to keep your business responsive, why not sign up for our newsletters?

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