Trading conditions have clearly been difficult in recent times. My clients from differing industries note that demand is down as the impact of tightened spending and construction projects coming to completion at the big end of town trickles down to local business. The impact of COVID 19 has decimated some small businesses while others have benefited from the changed environment. I have developed some advice to assist us get through these difficult times which will also place us in a solid position when our customers start spending again.
Manage Your Cashflow
Typically in tough times, the most significant issue faced by entities of all types is poor cash flow. Ideas to improve your cash flow include:
- prepare regular cash flow forecasts
- improve your debt collection processes so that outstanding debts can be converted into cash in a shorter timeframe
- make full use of your terms of trade
- if you are undertaking trading activities, reduce stock levels and replace slow-moving and obsolete stock with stock that has a faster turnover
- consider the deferral of capital investments or discretionary spending
Prudently Contain Costs
In difficult times, it is important that your entity focuses more than usual on controlling costs. This can also be a trap for many businesses as they fall in the trap of being too inwardly focused and not focusing on the customer or your product or service offering. Focusing excessively on costs can save you a few dollars but can cost you much more in lost revenue or other costs. Instead, you should:
- focus on costs within the control of the entity – look at cost centres rather than individual transactions
- be flexible with your staffing arrangements
- Commercial rents/leases have reduced significantly. Ensure when lease renewal comes up there is a market based correction
Watch your Margins
It is important that while you improve your cash position, you should also seek to be maintaining your margins. Here are some ideas to improve your return on your trading activities:
- prepare regular financial statements and analyse them
- focus on sales that give the highest margin
- don’t discount on low margin products and services
- don’t discount unless the same or better gross profit can be achieved through increased sales volume
- control the costs of trading activities
- don’t chase any sale – chase profitable sales
Stay close to you clients
A word of caution. Your income stream is just as important as your expenses. With the increased focus on margins and costs do not forget that your client represents your income stream and you need to nurture that relationship. They will more than likely have your competitors knocking down their doors offering lower prices. You need to ensure know what is driving your customers business and the challenge they are facing.
Too many times I have seen businesses during trying times focus exclusively on internals issues. Don’t lose sight of your customer!