Figures released by BACS earlier this year highlighted the impact of the credit crunch was having on small businesses. The average small firm was owed £30,000 in unpaid invoices and 29% of those questioned said they could go bust if they are owed just £20,000.
It seems this is already filtering through into companies going out of business. Data released in May by the Insolvency Service revealed company liquidations rose by 2% on the previous quarter and 4% on the same period a year ago.
Alan Moody, managing director of Mamut UK and Ireland, offers the following tips on how small businesses can best prepare themselves to weather the economic slowdown:
Get your finances in order
Unpaid invoices can mount up during downturns as customers
look to maintain their own cashflow. Tracking of invoices throughout the
payment process is essential so they can be chased as soon as possible.
Up-to-date accounts will also help show you where your own business can cut
costs. The easiest and most efficient way to do this is to invest in automatically
updating systems
Infrastructure
One of the easiest and most cost-effective ways to maintain
efficiency is to invest in scalable and affordable business management software.
Software should give a 360-degree view of a business, tracking sales, products
and finances from supplier to customer. Packages can manage all aspects of a
business, including the creation of reports, management of financials and payment
tracking on one system
The right software simplifies administration, helps ensure adequate cashflow and allows any financial warning signals to be seen at the earliest possible opportunity. These benefits combine to maximise efficiency and deliver a huge advantage for today's small businesses compared to their counterparts during previous economic slowdowns, when such software was only in its infancy
Set realistic goals
Think carefully about new projects or expansion plans. Additional
loans and the distraction of new initiatives will start to become huge burden
on a company, and management needs to place absolute focus on the core business
Keep your staff happy
Morale can sink during economic slowdowns as staff fear that
they may lose their jobs, and will have wider worries regarding their personal
finances. This can hinder productivity when a company needs it most. Employees
need to be advised about potential pitfalls ahead, but also reminded that job
losses are preventable if the team fulfils its responsibilities
Have a contingency plan
A business always needs to recognise the worst-case scenario
as early as possible. An effective crisis plan has to be developed in case this
takes place, taking into account the possible effects on each aspect of a
business
Keep relationships healthy
Small businesses are particularly dependent on their network
of suppliers, customers and bank manager. Owners and managers need to ensure
these relationships are strong, as they may be more willing to provide extra support when it is
needed most
Invest in your business
Make sure you look after your business despite the temptation
to wait until better times. Critically, make sure you secure your business data
by backing it up. Also look at effective ways to market your business, for
example by creating a website. You will be amazed at how effective this
can be at informing existing customers and attracting new business for just a
few pounds each month. In difficult times, focus investments on how your
business can be more efficient through improved stock control or improved sales
force management
