As we hear of various companies facing financial hardship, some going into voluntary administration such as Darrell Lea (an 85 year old company) and Fletcher Jones late last year (a 100 year old company) all businesses should be posing the question; how do we safeguard our future.
Many will say the writing was on the wall for a long time, and those who have experienced recessions (or depressions as the above companies would have) may have mistakenly thought that markets will recover and times would turn around again shortly. This line of thought though is fraught with danger. For starters it fosters a belief that you can continue to travel at the speed and distance you always have, because eventually things will get better and so too will the bottom line. However, nothing happens overnight, and in this case there have been nearly two and a half years of “overnights”.
The only way for business to survive in this day and age is to adapt, and adapt quickly. With historically fantastic years in retail, hospitality and services such as finance, vehicle and real estate sectors, business owners could fly by the seat of their pants as money rolled in and budgets weren’t even considered to be necessary. Fast forward to 2010, and things had to change. The bottom line had to be analysed and net profits had to be saved as opposed to distributed. If you waited until 2012 to do this, you waited too long.
Markets can change and consumer sentiment and confidence can drop, but business must go on. If this means thinking outside the square with regards to dealing with stock on hand or creating customer payment plans to increase cash flow, then you have to adapt quickly or risk NO net profit. When things are good, business owners don’t need to count the money, they just watch it come in. When things turn bad, business owners need to count everything – dollars at the top and dollars at the bottom, number of customers, level of repeat business, volume of stock – that’s right, all the basics and all the things that should have been counted from day one but get neglected in times of boom or even times of consistency.
And of course the other issue that arises when safe guards haven’t been put in place early enough is wages. All of a sudden when the bottom line is thin, the staff wage line in the expenses column looks really, really large. Owners who haven’t cut back in other areas then panic and look at reducing staff numbers. Not only does this have an impact on your business because service levels suffer and clients look elsewhere when you’re trying so hard to get them to stay where they are, it also has a global effect on – you guessed it – consumer sentiment and spending patterns.
So what are seven quick tips to ensure you are ready for any further changes?
1. Look immediately at all non return on investment items that you spend on. Things such as fresh flowers delivered to your foyer or other things you don’t see an immediate return on.
2. Negotiate terms for stock on hand with your suppliers. Put at least some of the pressure back onto them by changing the way you purchase stock. Ask for 50% on delivery and 50% on sale. They can only say “no” but if you get a few that say “yes” your cash flow will improve.
3. Give customers payment options for large goods to increase attractiveness to purchase from you over your competitors. 3 – 6 month payment plans or similar terms to the ones you have arranged with your supplier will make you look flexible and easier to deal with.
4. Turn to email. How much physical mail do you send? Invoices, receipts, newsletters, reminders – spend the next six months building an effective client email database and start saving on print and mailing costs.
5. Review staff KPIs. Better than losing jobs and better than reducing hours, staff Key Performance Indicator bonuses should be reviewed. If things are tough for company targets then staff targets need to be tougher too. By increasing target numbers you will only reward staff when it is rewarding to the business.
6. Review sponsorship and community benefit budget. How much did you spend on the community last year. All businesses are generous to the community but often at the detriment of staff. Again it comes down to not knowing how much you spend each year. Ad hoc decisions have to stop. Allocate a percentage of net profit to the community and stick to it. You have to learn to say “no”.
7. Contact your existing clients by way of survey or invitation into the shop. Anything that will allow you to reconnect and keep your name top of mind without spending huge amounts of money.
And finally in conclusion, work out how much your target is for expense reduction and make it happen. If it works out you need to save $2,000 a month or $50,000 a month, go for it. In 12 months time when gross profit is the same or even down a little bit, your bottom line will have improved and hopefully your staff and service levels remain the same if not better!
Adam Drummond is one of the Directors of Fitzpatricks Real Estate, a public speaker, co-founder of Wagga Business NetworX and Ignite Mentor as well as an avid blogger. All opinions are his own and not necessarily those of his co-Directors, affiliated organisations or his family. For any financial or business related advice always rely on your own situation and financial needs and refer to your accountant or business coach before taking action.