As I write this, there are fresh concerns across the world economy over recovery in Europe and North America, Chinese GDP is slowing, and the Australian mining boom seems to be coming to an end.
These are world-wide economic affairs, and as owners of small businesses you might be wondering how this affects you, the small fish in a big pond.
The effect on you trickles down from what happens on a global scale. As countries batten the hatches, the larger companies in your nation’s economy slow down because their customers buy less. These larger companies buy from smaller companies, and these smaller companies buy from you. As the larger companies tighten the belt, employees might lose their jobs. Some of these individuals buy from you. Business might still seem good to you today, but it may take some time for an economic crisis to trickle down.
Nevertheless all is not doom and gloom, there are some signs of opportunity that encourages continued optimism. So what do you do today with these mixed messages?
As a small or micro-business you need to recognise and take advantage of modest opportunities to grow, but at the same time recognise the existence of potential downside risks.
Certainly, pay attention to your bottom line but at the same time, focus on cash flow and not just profit growth. Ensure that you are putting away sufficient working capital to survive any shocks. You need to continue pursuing business opportunities, but with discipline and careful planning. And, this is the time to put in genuine efforts at reorganising your business for efficiency.
As a small or micro business today, realising that you are at the mercy of market forces outside your control, I would look at these 6 steps to build resilience into your business.
- Know how you are performing in your business, and in your industry. This means that your internal financial and operational systems need to be organised and prepared to give you timely information about profitability, cash flow, debtors, sales, suppliers and purchases. If it takes you more than 3 weeks after the end of the month to obtain a financial report, you need to change that. If your financial report does not give you information such as prospective cash flow, days in inventory, days in debtors and days in creditors, you need to change that. If your reports do not tell you which customers are buying and which are not, you need to change that. You also need to know how you are performing on all of these measures within your industry – against your competitors as well as whether you meet your industry targets or better. You do not need to be an industry leader; placed in the middle of the pack but with resilience in your business you may well survive the shocks that knock off highly leveraged leaders.
- Understand and use your core competencies. Every business has core competencies – perhaps your sales staff, your ability to source or install or repair your product better than anyone else, perhaps it is the way you keep in touch with your customers so you know their needs, perhaps it is the efficiency and diversity of your supply chain. Make sure you understand what it is that you do best, and make sure that you use this as an advantage – how do you gain a march on competition? How do you build this into the core of your business so that in hard times you rely on core competencies?
- Focus on cash and working capital before profit and profit growth. Make sure you do not chase the opportunity by over-trading – where you chase more sales than you have the resources to support, expanding too quickly for cash to catch up. Keep a close eye on your customers and their own trading cycles, ensure they keep within terms of trade.
- Understand what is happening in the broader economy. Make sure that you look for what is happening around you that could affect your business. Are there any new taxes, or taxes that have been repealed? What about changes to the law or regulations that mean threat or opportunity for your product? If you don’t have the time make sure someone is tasked to scan for these external inputs.
- Streamline your procedures and processes, and make sure this is embedded as real change in your culture rather than a knee-jerk cost-cutting exercise. Your procedures and processes should be examined, as part of a business-wide initiative involving everyone’s input, to build efficiency into “how we think and do things in this business”. Look to standardise processes, and eliminate unnecessary procedures. If it takes an employee 6 signatures to order stationery, that’s 5 signatures too many. Base the changes on empowerment and accountability.
- Good planning. Do you have a written business plan? Should you look further and have a strategic plan that examines different options? One useful planning exercise in times when you cannot safely predict causes of action is scenario planning (“what-if” and “What is likely to happen”) which allows you to prepare Plans B, C and perhaps even D.
While business is still good, and in the situation where you can be cautiously optimistic but would like to be prepared for an economic down-turn, the best thing you can do for your business today is to build resilience into your business. Resilience is simply good practice in bad times, or in good.
My website at https://teikoh.com provides valuable tools, templates and resources to test your business – and you can download these for free! When you are there, subscribe to our newsletters by providing your name and email and you will receive tips like this direct into your inbox.