The building blocks for success before, during and after an economic downturn

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“It feels like sales are falling off a cliff” - or words to that effect – are an all-too-common occurrence in a business community battling high costs as households continue to tighten the purse strings.

If you’re experiencing stagnant or declining sales, there are some practical steps you can take to help your business stay the course during tough economic times. The following tips will not only help you navigate a downturn, they’re also part of good hygiene practices you should revisit on a regular basis to improve your business’s performance and build resilience throughout your organisation.  

Avoid short-term decisions

Cutting costs including non-essential capital expenditure is important, but tread carefully. Avoid knee-jerk reactions that might harm your future revenue ramp-up. Instead, focus on trimming non-essential expenditure while safeguarding key operational functions and preserving your ability to bounce back when economic conditions improve. 

For example, you might see cutting R&D as a quick, easy, and sensible way to save money. However, in the long term you may find that you will have to start all over again, or worse, lose your edge over the competition. Another common cost-cutting exercise is reducing your headcount, but is it worth losing trained team members in the short term only to recruit again when things are booming again? It’s a false economy that can turn into an expensive and time-consuming exercise. 

Look up and down your supply chain

You’ve probably already scrutinised any spending to identify areas where input costs can be trimmed without sacrificing quality. Now it could be time for some heavier lifting. 

Before you start, think about your position in the value chain and how you can work up and downstream. Sources of value can be found in many places. Consider where suppliers cost you money. Where do you cost them money?  Where do your clients cost you money, and vice versa? For example, savings can often be found when you think about your forecast accuracy and order size. More accurate forecasts and larger orders might help your suppliers and logistics providers optimise.

Do you understand your bill of materials (BOM)? No, do you really understand it? How long has it been since someone waded through the master data? It could be the input costs and margins aren’t what you think they are. Areas that are commonly overlooked are updating the BOM when recipes change or materials are substituted. Yield loss allowances are also worthy of scrutiny.

Is your operating model fit for the next few months? Is it fit for the period after that? Times like these can be the perfect opportunity to gain clarity and make some strategic calls. In previous downturns we have seen companies take the time to invest in the parts of their business operating model that will set them up for the future.

How streamlined are your processes? How much digitisation do you need but have put off, such as e-invoicing and automating simple tasks? If you haven’t done so already, e-invoicing is a great place to start; you can save time and money - and perhaps most importantly – reduce the risk of cyber-fraud, which can result in huge costs that you don’t need during an economic slowdown. There’s even a free, safe and easy to use platform you can use.

Cashflow planning

Cashflow planning and forecasting should be something all business undertake, particularly when you’re feeling the squeeze. Key areas you can focus on are as follows:

Reviewing your payment terms

Cashflow forecasting will show you how changing these terms can impact your liquidity. Consider how you can accelerate receivables, even if you’re giving a little away to get cash in the door earlier. You should also look to delay payables without straining key supplier relationships.

Creating and enforcing cashflow management policies, and reviewing them regularly

Managing your debtor list isn’t the most pleasant task on your team’s to-do list, but it’s one of the most important. Keep in touch with debtors and have a system in place for reminders and pursuing aged debts.

Investing in systems for better debt collection

Automating reminders and statements can make debtor management less painful and speed up the payment process.

Identifying problem areas and rapidly developing solutions

Cashflow forecasting can help you spot problems before they snowball and seriously damage your business. If you’re only working off what’s currently in your bank account, you’re running the risk of being blindsided by things like seasonal fluctuations, regulatory change, changes in payment terms with suppliers or customers, or not setting aside sufficient funds for tax obligations. This is why an increasing number of businesses are undertaking regular short and long term cashflow forecasts.

Seek help early and lean on your network

Often banks can feel like the ‘bad guys’, but the reality is they want and need businesses to succeed. Reach out to your bank to discuss interest only terms or more cash flow friendly restructuring options. These conversations can be tough, and for some it is a matter of swallowing your pride, but being on the front foot and seeking help early can sometimes be the difference between pulling through or failing altogether. “If only you’d come to us three months ago”, are words you don’t want to hear from your bank manager, or worse, a Receiver.

If you’re not getting what you need from your current bank, maybe it’s time to test the market.

Prioritise customer retention

Your existing customers can be a goldmine of new opportunities, but only if you’re out in the market and talking to them to discover what these could be. Nurture relationships by catching up regularly, address pain points, and continue to provide exceptional service through continuous improvement based on the feedback you’re receiving. 

Downturns can also breed pessimism among your team members and idle hands can create havoc; so, if your team isn’t at full capacity, give them tasks they could do to strengthen your relationships with customers.

Whether managing personal finances or navigating the business challenges that come with downturns, the need for strategic planning and resilience can’t be overstated. The steps outlined here are crucial for maintaining stability and preparing for recovery. By prioritising efficiency, retaining loyal customers, and keeping teams motivated, you can weather the storm and emerge stronger on the other side. Embracing these practices can often not only ensure your immediate survival, but they also lay the groundwork for sustainable growth in the future.