Is Your Business Ready for 2010?

I think we can all agree that 2009 was a tough year for almost all sectors. Even those that are growing were struggling with cashflow issues. As 2010 gets off to a stuttering start because of the harsh weather, it's good for business owners to look at themselves and consider whether they are fit enough to take advantage of the inevitable opportunities that 2010 will bring.

IDENTIFY RISKS AND STRATEGIES

Have you reviewed the major risks affecting your business and developed strategies to mitigate those risks? For example, many importing companies that have previously enjoyed the strengthening of the £ on foreign exchange markets were hit by significant losses in 2008 and 2009. As a result the risk of further large currency movements are monitored closely.

Bad debt risk is another major factor that has significantly impacted some sectors - most notably construction. Many entrepreneurs focus on the steps to success and do not identify the possibilities of failure.

A balanced management team including senior finance helps to identify these potential problems and help avoid them.

PRODUCT DEMAND AND PROFITABILITY

For a business to be fit for 2010 it should know the profitability of all of its products and also how the demand for them has changed and is likely to change again during 2010.

Many businesses have been forced to change the direction of their product or service offering to reflect the changing demands of their customers. Tescos shifted their bias towards their value range. More recent promotions are being targeted back towards their finest range now indicating a shift in their focus.

The same principals have been adopted by lawyers, accountants, marketing consultancies and manufacturers.

COST CONTROL REVIEWS

One area whether there has been a consensus across the private sector during 2009 has been cost control. All businesses that we have interacted with have been through at least 2 cost control reviews.

However, one must consider whether these have been carried out effectively. In many cases, one should look first at the underlying activity itself to determine whether it is necessary for the business to continue. For example, some life insurance companies have accepted that chasing signed paperwork from potential customers who said yes on the phone but have not signed the contracts within 30 days, are probably never going to sign. It then becomes more economic to drop the activity and save 100% of the cost.

Another key factor in successful cost control is the investment in negotiation skills. Does your team have professional negotiation skills training? The return on investment for business owners in this area during 2009 was "stella".

CHANGES IN BUYER BEHAVIOUR

Many businesses during 2009 saw the behavior of their customers change. Good businesses saw this as an opportunity to review their customer base and determine which of their customers actually delivered profitable and cash generative business.

Businesses invested more time in developing their relationships with their best customers and renegotiated their trading with their less attractive customers. This ensured that they made the margins they were expecting and got paid on time. Some businesses shrank to a more profitable and cash generative business as a result.

However, struggling businesses were so desperate to keep their cashflows turning over that they could have been abused by their main customers, who deliver zero profitability and negative cashflow, and neglected their more profitable customers. In many cases these business owners who are working really hard and going nowhere are unaware of the cause of their stress.

THE RIGHT TEAM TO DELIVER

During 2009 there were many redundancies and changes to working patterns. In many cases business owners who had previously been seen as the patriarch or matriarch of their organisations felt that they had failed their teams. The reality is that the survivors are perceived in much higher regard than they think.

During these tough times, business owners should take a long hard look at the personality of their business. If cultural change is required to make their business more attractive to customers and to potential staff in the future now is the time to implement those changes. You want your teams to be part of the solution and not part of the problem.

HAVING VISION FOR THE FUTURE

To enable your business to take advantage of the opportunities that present themselves during 2010 it is vital that you have a clear vision of your business and where you want it to go. This enables you to match the opportunities to your vision. If opportunities are taken that are outside the vision the chances of them paying off falls dramatically.

Driving through troubled waters skilfully depends on good visibility of both your own business and the market place. You need to have a strong reporting system in place for both your historic performance and your ongoing deliveries.

Many businesses during 2009 either recognised this themselves (or were forced to do so by their banks) and strengthened their finance teams with more skill and experience. At www.thefdcentre.co.uk we saw more significant enquiries for part time FDs than any previous year.

TAKING A MANAGED APPROACH TO RISK & FUNDING

Do not be afraid to invest but you must fully understand both the risks of the project you are undertaking and the investments and activities that are required to implement that strategic investment. The problem is that many business owners are entrepreneurial and do not see the steps required for implementation.

A balanced management team with strategic financial planning skill and expertise is necessary to reduce the strategic mistake made by rash strategic decision making. Many businesses will have put strategic projects on the back burner last year and the plans may be hitting the table again in this cold snap. Take the opportunity to review the decision properly. 

Funding strategic growth will be a challenge for many businesses in 2010. However it's important to note that the banks are actually desperate to lend money to good businesses that can present a good business case. To do this you have to understand the way a bank makes a lending decision and to build a strong relationship with your bank manager whose job it is to present your case to his/her credit team.

Finally for those businesses that are considering recruitment or acquiring a business in 2010, I cannot stress the importance of understanding the cultural fit to the business. To understand whether the individuals you want to recruit or the staff of the business you want to buy fit with your own culture, you first need to understand your own culture before you can determine whether there is a match.

To download these points as a pdf checklist, please click 'download checklist' in the right hand panel of this page.

For those businesses that want a review of their business by an experienced Finance Director, The FD Centre is offering a free 2 hour financial health check.  If you are interested in speaking to an experienced professional or to find out more please get in touch. Click on the Free Financial Healthcheck link in the right hand panel of this page and visit www.thefdcentre.co.uk.