So far, things seem to be holding up reasonably well. That's because if businesses provide the things we want, we will still buy them. But, as a business owner, what do you need to focus on now, not just to survive but to thrive, in these uncertain times?
There are only two real ways of making a bigger profit: sell more and cut costs. You can also put your prices up but then you may sell less. Easily said, but where do you start? The first thing to do is to get objective and impartial advice. Your local Business Link, for example, provides help for people starting, running or growing their business and can put you in touch with specialist sources of support in both the public and private sectors.
Next, develop a vision: something short, pithy and measurable that you can be proud to share with your staff, customers, suppliers and business partners.
Once you know where you want to go, you can work out how to get there. What will success look like and how are you going to measure it? Keep it simple, but at least three of the indicators should be financial: net profit and turnover are definites and gross profit should probably be included as well. A business plan is important for all businesses to have. It doesn't need to be particularly long but it should make it clear what you're planning to do, when and how.
‘When things start to get a bit tight, it's tempting to chase any sale
but making a sale and then not getting paid is worse than not making a
sale at all'
What is essential is to keep on top of your cash position. Prepare an accurate cashflow forecast for the next 12 months set out on a monthly (or weekly) basis and with columns for ‘budget' and ‘actual'. If your ‘actual' figures diverge from your budget, don't immediately alter the budgeted figures to fit. Work out why they differ and take corrective action.
Look at your cash position every day. With finance becoming less readily available, it's not going to be so easy to increase your overdraft limit. It's likely to be more difficult to get a loan to finance growth and even if you do it will be more expensive, so it makes sense to build up your own cash resources if possible.
There are many ways of improving cashflow. Don't tie your costs down too tightly. If things do get tough, you will probably need plenty of room to manoeuvre so build in plenty of flexibility. Review all your costs regularly. Try to avoid making long-term commitments or investing in expensive items. If you really can't avoid replacing plant or equipment, then lease rather than buy.
Control suppliers rather than letting them control you. Try and negotiate better terms with them, but only consider switching as a last resort. Despite what you may hear, loyalty counts for a lot in business. So don't throw away a mutually beneficial relationship for the sake of an extra few days' credit.
If you must switch, don't compromise on product quality or the service you get. If you think switching is the best thing, make sure you do your research first. Ask for bank and trade references and follow them up. The last thing you want is for your supplies to be disrupted, or, worse, end up in an expensive dispute. That said, you should also ensure that you're not reliant on one supplier or customer. You don't want their business failure to become yours.
If you have negotiated a period of credit with your supplier, make sure you pay on time. Your supplier is going through the same uncertain times as you so they won't want to spend too much time on customers who are late-payers. Your reputation as a bad payer will spread quickly and if you end up in dispute your ability to obtain credit may be compromised. Saying the cheque is in the post is fine, as long as it is.
‘A business plan is important for all businesses to have. It
doesn't need to be particularly long but it should make it clear what
you're planning to do, when and how'
The other side of the coin is control of your debtors; in other words, your customers. This is a weak point of many small businesses. Make it your policy that, as a rule of thumb, the average period of credit you give to your customers corresponds with the average period of credit you receive from your suppliers.
Bear in mind that your customers will be feeling the pinch as well, so it's important that you take some care in accepting business. When things start to get a bit tight, it's tempting to chase any sale but making a sale and then not getting paid is worse than not making a sale at all.
As with your suppliers, ask for bank and trade references and follow them up in every case. You should also consider carrying out a credit check using agencies such as Dunn & Bradstreet, Experian or Equifax. Review your terms and conditions on a regular basis. Are they clear and, more importantly, legal?
Once you've done all that, invoice accurately and promptly and get the money in. You agreed to supply a product to your customer, not to be their banker. As with all business relationships dialogue is best, so if you're going to have a formal credit control process build in some flexibility and adapt it to your customers' circumstances.
Selling points
Now that we've got the costs under control, it's time to look at the other side of the profit equation: boosting sales. To do this, you need to sell. There is no silver marketing bullet. The purpose of marketing is to make selling easier. So if, in the current climate, you find that your sales are static or declining, what do you need to do to prompt potential customers to make an enquiry or for you - or your sales team - to convert to a sale?
Where is your marketplace? Is it still where you thought it was, or have your clients moved on? Is there more than one marketplace, either in the UK or abroad? Do customers know you're there? How are you communicating with them? It can be easy to get brochures printed or to run a series of advertisements without actually thinking about who is going to see them. Put some thought into where your clients congregate, either physically or metaphorically, and focus your message there.
Are you selling at the right price? This is a difficult one to judge. Be different from your competitors, look for a sustainable competitive advantage, clearly express your unique selling points - such as research and development or your own skills and knowledge - and you will be able to command a higher price. The best way to be sure that the price is right is to slowly raise prices until sales begin to fall away, but this takes time. And that's something many business owners may not have right now.
Jonathan Sharpe is an adviser at Business Link. For free and impartial advice on how to beat the credit crunch visit www.businesslink.gov.uk/creditcrunch or call 0845 600 9006
