The Square Orange

Recession Proof Your Business

Is this possible – to recession-proof your business?  Well no, probably not despite the wealth of articles about how to do so appearing on the internet (about 614,000 hits on Google).

 

However, what is possible is to secure your business as much as is possible by following a series of simple and common sense business strategies.  These strategies are no different from strategies you should employ under normal circumstances, but which application is much more acute in today’s economic climate, and with a different emphasis required.  Sadly when times are good, businesses allow themselves to get “fat” and some of these every-day disciplines are allowed to slacken.

 

The strategies can be grouped into defensive and offensive strategies.  As you look at your business performance it is likely that you will find profit performance heading south, and with the economy looking the way it is, it is difficult not to panic and begin to tighten all the hatches.  However you can tighten too much, to the extent that your business finds it difficult to operate normally.  Hence, while it is natural to concentrate on the defensive strategies such as cutting costs, it is important to keep in mind the offensive strategies – those that your business should take 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 and get them out of the way.  There are six simple strategies that you need to look at and with some discipline, enforce them.  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.  If you do not know, find out immediately which lines of stock turn over quickly.  If you do not already know find out immediately the number of days’ each lime of stock takes to turn over.  Calculate economic order quantities (EOQ) for each line of stock – this is a function of cost, time taken to receive an order from your suppliers and the time taken to turn over stock in hand.  Ensure you are only carrying EOQ’s in hand as otherwise you may be sitting on your profits.

 

  Second, retain your cash.  Ever heard the phrase “cash is king”?  Where assets such as stock and capital growth investments or even 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.  The other 5 defensive strategies will help you retain cash, however the most important strategy is to keep 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?

 

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 expenditures 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, lease or hire purchase contract and then fail to communicate with their bank until it is time to renegotiate.  Instead, you must keep your lines of communications with banks open.  Ensure they receive financial reports from you on time, develop a relationship with your bank manager so that they know how your business is travelling.  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 time are good this is usually allowed to slip, particularly as too few businesses measure efficiency.  How do you measure the efficiency of a retail business or a medical practice?  Surely it is much easier to measure efficiency in a manufacturing business or a law firm that keeps time sheets?  It may be easier but it is not impossible to measure efficiency of any business.  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 is a consult in a medical practice?  How long does it take you to receive an order and send it out?

 

I started this article by saying that there are both defensive and offensive strategies that you need to look at.  While we have dealt with defensive strategies first to get them out of the way, it is not defence that will create a strong impression in the minds of the people you need to help you survive the recession – your customers.  In order to clearly put your business in their minds and therefore seek their support through steady sales, you have to go on the offensive.

 

Offensive strategies need not be costly, which is the fear of any business person in a defensive mind-set.  In fact all the offensive strategies discussed here can be implemented without increased cost, by focusing on what you already do but doing it better, or by switching unproductive spending towards outcome-focused expenditure.

 

There are 6 offensive strategies you cannot do without if you want to survive the recession, and not just survive it but exit in a state ready to grow from the first opportunity:-

 

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.  And be quite aware, marketing is not “advertising”!  Low cost or no cost ways to increase marketing may involve “inbound marketing” on the web through your website. Build a better website, increase search engine optimisation, use social networking sites such as You Tube and Facebook.  One of the most effective means of cost-effective marketing is simply doing what you do well but doing it even better, and ensuring customer service is tuned to 100%.

 

This leads us to the second offensive strategy of focusing on customer service. Do not allow your customer to forget you.  When you are face to face, smile, ensure you are listening to their needs, thank them as they leave whether or not they have bought something.  Keep up contact with them, call them after they have bought something to see if they are happy with the product and the service, offer after sales service and “frequent buyer” programs.  Give them value-added service without it costing you much more – faster delivery times, wider selections.

 

The third offensive strategy is to look to diversify.  Once you have measured your stock turn  (defensive strategy number 1) look to increase products and services with selections that meet real needs.  Firstly, see if any products or services related to the ones you sell now are more appropriate in tighter economic times – appliances that cost less to run, financial reviews by investment advisors, provide “packaged” services.  Second, 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.  While it is true that at all times we should look after our best employees, when we are busy and our sales is going through the roof, it is easy to allow the odd non-perfomer to slip through simply because we need the extra hands.  Some of these non-performers may have been weeded out as you went through defensive strategies to increase efficiency and cut costs, but you now need to turn your attention to the winning members of the team.  In many businesses, these are your first contact with the customer.  You need to 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 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 in products and services. Use the latest technology to get your services or goods to market faster; use technology to keep in touch with customers through e-mails and blogs; 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).  On the other hand if you are a clothing retailer you might get together with a local shoe shop and offer discounts for a matching pair of shoes (and the shoe shop can return the same discount offer).

 

So, can you recession-proof your business? There is no guaranteed method 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.

Happy New Year - Start Planning

It’s the start of the new year for business, the start of a new tax year, but even more important, the start of a new business year.

While it is important to “re-set” your tax systems and tax plans for the year ahead, consider why you pay taxes. Taxes are paid on profits, and the ultimate tax plan is to simply make losses – however, not a great plan for your business and personal wealth! So, while we would all like to keep the Taxman at bay, ultimately the secret of your success is to make your business grow.

It is an old adage: “businesses don’t plan to fail, they fail to plan”. Yet time and time again surveys show that fewer than 3 to 7% of small and medium businesses that fail have ever done any business planning.

The start of a new business year is the best time to start a business plan. You can “close the books” and think about new initiatives and ideas about your business. It is the business equivalent of making your New Year resolutions, but with a better process that can lead to follow-through and organized action.

A Business Plan is simply a detailed plan of listed actions for your business.

It takes your strategic direction, your overall organisational goals and strategies and lays out the tactics of how to achieve those strategies and thus the goals. It is a document that ensures everyone involved in your organisation - owners, workers, suppliers, advisers - are all stepping in the same direction.

In most cases, you will need help to prepare your Business Plan from an experienced business adviser. This is because an experienced adviser will have a process that is tried and tested to walk you through a series of analytical and dispassionate steps to examine your business and desired direction, and translate it into plans. However, your Business Plan should be your document. It should not be prepared for you, it should be prepared with you.

Your strategic direction is what you are ultimately trying to achieve, your Vision for the business. From this will flow your Organisational Goals and Strategies, and from these will flow the Operational Plans for your business.

There are 5 Operational Plans:-

·          The Marketing Operational Plan

·          The Production Operational Plan

·          The Operations Operational Plan

·          The Human Resources Operational Plan

·          The Finance Operational Plan

Operational Plans are the detailed steps you will take in each operational area of your business in order to achieve your stated goals. That is why it is important to continuously align the detailed steps with the expected results to see if each part of your business will help you get to the Big Picture.

The Marketing Plan will look at your markets and customers, identify who you want and what you are actually selling to them, and what you need to do to get them.

The Production Plan will look at the way you “produce” - whether this is manufacturing, retailing or providing a service, there are processes your coal-face staff follow.

Your Operations Plan looks at your systems and infrastructure, including support systems such as business advisers, accountants, lawyers.

Your Human Resources Plan looks at your most important resource - what are their skills and abilities,

what skills and abilities you actually need, your organisation chart, accountability and performance measures.

Your Financial Plan pulls all the Operational Plans together and quantifies them. It looks at forecasts and cashflows, capital requirements and financial measurements.

It is worth stating again that a successful plan aligns all the detailed action towards the strategic direction. Say for example you plan for and prepare your staff performance measures piece-meal without consideration of the strategic direction. Your performance measures might reward the number of hours the staff charge to their timesheets. However how will this affect your strategic direction that may rely on fast outcomes? The staff are being rewarded for working long hours without measurement against outcome speed. Hence once the operational plans are written they need to be reviewed against the strategic direction.

Ultimately, what is a Business Plan but a written document? In order to make it work you need action. The Business Plan process must include an Action Planning process where each Operational Plan, each step and decision in an Operational Plan, has a series of Action Plans embedded. These Action Plans serve as reminders of the day to day actions required to implement the Business Plan. They highlight negotiated responsibilities, set out what is expected when the action is complete so that everyone can measure success, and they nominate agreed timelines for completion. Where necessary, additional resources are detailed so that people are not set up to fail.

After the intensity of the work required to prepare the Business Plan, despite the best intentions, you will go “back to work” where you will get caught up in the everyday problems of the business. In that situation it is not hard to “forget” what you are supposed to be doing according to the Business Plan you so earnestly believed in just weeks ago. This is where the secret of following-through needs to be implemented and that secret is a Monitoring & Evaluation system built around teamwork and peer reviews. It must not be a punitive system but a system of support and team responsibility.

Effective Meetings

Your meeting should be an event that produces results or outcomes and not the "process of meeting." Things need to get accomplished. To improve the results of a meeting, begin by defining and improving the meeting process and people's commitments to it.

According to a study by the University of Southern California in Los Angeles (as cited in Forbes, 10/25/93)

• The average meeting takes place in the company conference room and 11 in the morning and lasts an hour and 30 minutes.
• It is attended by nine people -- two managers, four co-workers, two subordinates and one outsider -- who have received two hour prior notification
• It has no written agenda, and its purported purpose is complete only 50% of the time.
• A quarter of meeting participants complain they waste between 11 and 25 percent of the time discussing irrelevant issues
• A full third of them feel pressured to publicly espouse opinions with which they privately disagree. Another third feel they have minimal or no influence on the discussion
• Although 36% of meetings result in a "complete" resolution of the topic at hand, participants considered only one percent of those conclusions to be particularly creative.
• A whopping 63% of meeting attendees feel that underlying issues outside the scope of the official agenda are the real subjects under discussion.
• Senior executives spend 53% of their time in meetings, at an average rate of $320 per person hour.

Some Steps:-

1. Clarify The Meeting Objective

The team begins the meeting by ensuring that people understand and agree on what is to be accomplished. Objectives include both the content of the meeting and the specific process objectives, such as improving participation, gathering initial ideas and listening to others.

2. Review Roles of Participants

Confirms who will be taking on specific roles for the meeting and what their roles will be. These can include: leader, team members, recorder, timekeeper, and facilitator.

3. Review the Agenda

Each agenda item includes the methods (e.g., brainstorming, mind mapping, cause and effect tools, fishbone diagrams, system thinking, roadblock analysis process, etc.) to be used for that item as well as the amount of time to be devoted to each.

4. Work Through Agenda Items

There may be one or several items for a particular meeting. The team works through them in an organized manner, using the methods and the time frame decided upon in step 3 above.

5. Review the Meeting Record

Team members should review information recorded on flipcharts during the meeting to refresh their memories about what has occurred in previous meetings along with what has been decided. The team should check for corrections or additions to these meeting records and decide what information needs to be kept in the team's permanent transcript. In many organizations, these are included in formal knowledge management databases and archives. Try to add to the Learning Organization focus, if applicable.

6. Next Steps and Next Meeting Agenda.

By the end of the meeting, the group should discuss what needs to be done based on the results of this meeting and the start of the next. Often, there are multiple steps and tasks needing followup or planning. Agree on the work that needs to be done next in order to advance. Clarify if necessary and complete the transcription of the goals, summarizing commitments.

7. Evaluate the Meeting

Team members should take a few minutes to discuss:

* What went well that we should continue doing?

* How could we improve the next meeting?

Meetings are part of the improvement and communications process. They should be tied to long-term learning objectives and organizational development initiatives. They can serve many useful purposes (but sometimes do not!).