I came across this article by Jan Barned and thought I’d share it with you.
When trading conditions become difficult, successful small businesses are the ones that have the flexibility to transform poor performance into optimal growth and profit.
Sounds easy right? Well, it can be if you are willing to make the changes — and maybe even take some risks. The starting point is to understand the current business environment, its impact on your business operations, and then identify where improvements can be made. Here are ten tips you can look at to help you navigate through tough times:
1. Take stock
How financially healthy is your business? Look at profit and loss, balance sheet and cash flow statements and measure trends through financial ratios. Don’t forget to use benchmark data to compare your business with others in same or similar industry to see if you are tracking like your competitors.
2. Love your numbers
Look at the profitability of your products and services. Review margins, mark up and understand your break-even analysis. If you are not sure how to do this, ask your bookkeeper or accountant to help.
3. Control costs
Review all expenses and identify those that have been steadily increasing. Assess if there are alternative suppliers (mobile phones and utility costs are always a good one!).
4. Keep a cash stash
Ensure you have enough cash to cover the unexpected such as a finance facility from the bank in the form of an overdraft or credit card. This will help in an emergency and it’s best to have this in place before you need it.
5. Unlock hidden cash
Look at stock levels, outstanding payments from customers and terms offered by suppliers. Any improvement in these areas will “free up” cash for your business.
6. Forecast the figures
Understanding what to expect means that you can decide what to do before it happens. Track your anticipated cashflow by using a cashflow forecast, and use your financial system to record your budget. Together, they will provide you with the information needed to see where the business is headed.
7. Maintain your assets
In tough times, it is easy to let maintenance slip, but don’t! Remember that the assets of your business are the things that generate the profit, so look after them.
8. Plan for emergencies
Although hard to predict, make a list of the potential risks in your business and write out an action plan now — often it is hard to think clearly when it is all going horribly wrong!
9. Stay in control
Ensure that you have good controls in place to safeguard your business, such as documented procedures for staff to follow, which minimise the possibility of error and fraud.
10. Plan for the future
In difficult times, it is often easy to focus on the moment rather than plan for the future. These times will provide plenty of business opportunities, so continue to look for growth potential.
To steer your business through tough times, make sure you spend time to make changes.
Remember, nothing changes if nothing changes!