Recession Survival Tips

There is a great deal of advice being bandied around to help businesses survive and thrive through the recession. However, one has to look at the experience of those people who are giving the advice. Anyone younger than 40 has certainly not experienced a recession in their working life and therefore any advice given by them is entirely theoretical. If you want advice on how to get through the recession, you should be looking for someone with relevant experience to give it to you.

Recessions are the "winter" period in the economic cycle. This is the time when the Finance Director rules supreme in an organisation and the rest of the team desperately search for a foundation layer to stand on. It is the job of the Finance Director to stabilise the business so that it has a new set of foundations upon which to build business.

The FD Centre is a good place to seek proper advice to help you navigate your way through the recession. With 100 experienced Finance Directors of which 40 have worked though the recessions in the 80s and 90s and 6 of which were even working during the 1973/74 recession, this advice would appear to be well qualified. www.thefdcentre.co.uk

Colin Mills of The FD Centre explains that, in his experience, his belief is that successful businesses navigate and even grow during recessions by getting the basics right. There are 5 Pillars which one should stand by:

Tip 1 - Flying Blind

Never fly blind - it's like leaving the house on a frosty morning and driving off with the windows still frozen. Can't see a thing and very likely to drive into a parked car or a lamp post. How stupid would you look in front of your neighbours? For businesses in a recession, they need to have excellent visibility of their current performance and what is likely to happen over the coming months. Reporting of profitability and cashflow performance is essential as well as continually forecasting your future profit and cashflow forecast over the next 3-6 months. Many entrepreneurs consider the Management reporting information of a company is only something that the bank wants. Every entrepreneur needs to understand that this visibility is essential to navigate your way through the rocky waters that lie ahead. This visibility must be provided as quickly as possible after the end of every month. One client we started working with last year had secured a major contract with a large blue chip customer. The entrepreneur was so pleased with himself. We provided the monthly reporting and rolling forecasts and it soon became clear that the business did not have sufficient money to actually complete the contract and would be bankrupt before it had got 25% of the way through. As a result we helped sell the company to a better resourced company that wanted the contract and the entrepreneur was delighted with his exit and has since gone on to start up a new business in a related field.

The tip is to continually monitor how your business is performing and forecast how it will perform going forward. In this climate you will crash, if you cannot see where you are going.

Tip 2 - Staff Skills and Culture

Periods of difficulty for a business puts enormous pressure on staff and management to manage the changes that are required to get through the turnaround period. You need to look at both the skills required to perform the key roles and implement the change and also their attitude to get others to buy into the solution. Sometimes called the "whites of their eyes" test, you have to determine whether staff have the stomach to fight through the tough role ahead and want to be part of the solution OR are they wanting to keep their heads low, moan to colleagues and generally be part of the problem. Next you need to see what roles are required going forward and define the skills and experience required for the roles. You may end up with a poor fit between good staff and the roles required. Frequently this is the balanced decision making that needs to be made in a successful downsizing programme. Having made your decisions about who should stay and who should go, we would recommend making redundancies all in one day and then making a speech to the remaining staff "sorry we have had to say good bye to some of our colleagues but we are the team that will pull through the tough times - teamwork is everything now and we have to pull together". This creates the essential "can do" attitude - now get on with the plan.

The tip is to plan the team going forward very carefully and match the attitude to change with the skills and experience required. Be decisive and try to do the downsizing only once.

 
Tip 3 - Product Profitability

You need to look very closely at your product range, the sales volumes each product generates, the stock requirement, the gross profit, the terms with both the suppliers and customers and then rank the products in order of their ability to generate profit and positive cashflow. Having identified your best products you then need to honestly assess how demand for these products may be affected in a recession and whether the sales and marketing approach needs to be refined. A travel industry client reduced the product offering down to a narrow niche of holidays (especially cruises) and focused its marketing on these customers and its management time on ensuring these were profitable and generated cash. The result was phenomenal: while there was a temporary fall in sales, the company returned to profit within a matter of weeks and was generating positive cashflow.

The tip is to focus on your best products and possibly mothball products that soak up cash or fail to deliver profit.

Tip 4 - Supplier Negotiations

Many businesses either have failed to develop effective procurement skills or sadly have forgotten how to use them. This is a skill that is essential during a recession. To be effective preparation is everything. One needs to research all available alternatives and carefully consider all the elements that are valuable to you as a customer and all the elements of that supply that are likely to be presented by the supplier as "valuable". Contrary to popular belief successful negotiators are not aggressive, they are patient. We started work with one client recently who owned up to having no procurement skills in the business. As a result their main suppliers were demanding proforma payment while their customers were wanting to extend terms of payment. The inevitable impact on cashflow was dramatic. The procurement team were "friends" with the suppliers and did not want to upset them. Successful negotiations with these suppliers is already paying handsome dividends and the procurement team are not only friends but also respected business associates.

The tip is to invest in your negotiation skills at the start of a recession. Payback is immediate and the consequences for poor negotiation are often catastrophic.

Tip 5 - Customer Negotiations

Most entrepreneurs find it difficult to treat customer negotiations differently from supplier negotiations. The reality is that these skills are 2 sides of the same coin: whether you are negotiating with existing customers or potential new customers. You should expect your customer to have a list of requirements and you need to be prepared with your list of features and benefits against which you attach a value proposition and other terms that you are willing to "trade". It is essential that you understand your competition and what their strengths and weaknesses are. Your customers will generally fall into 3 categories; quality buyers who think they will never get sacked for buying the leading brand, price buyers who think they will never get sacked for buying the cheapest offer and the balanced buyer who is trying to achieve the best value for money for the company. Many organisations also separate out the role of specifying what is required from the procurement function. If this is the case, the buyer has to buy what is specified for the best price.

The tip is to invest in preparation. Buyers want to know you understand his needs whatever they are and you are prepared to work with that buyer to make him look good making the decision to choose you.

Tip 6 - Obvious Threats

It always staggers us how many entrepreneurs believe that major factors in their market place will have no effect on their business. We firmly believe that a business should be honest with itself when the market turns. It needs a revised strategy to maximise its potential in a changing market and it needs contingency plan for when things go wrong - which they usually do. The competition will react in different ways, ranging from suicidal pricing or sticking their heads in the sand or even mothballing their businesses. The best example of this is an agricultural equipment company in the UK BSE crisis that was determined to increase sales despite a collapse in the general market and a strengthening of Sterling. While headline prices looked good, subsidised exchange rates, zero interest Hire Purchase Deals and ridiculous buy back guarantees added together actually equated to a gross loss. The strategy was shear suicide.

The tip is not to ignore these obvious threats but to plan for them.

If you have these stable foundations in your business when others around you are floundering in the depths of despair, the adage of "patience is a virtue" will become self evidently true as great opportunities start to present themselves to the observant entrepreneur.