Let’s face it. We all started out the year with high hopes for another good year in business. Hopes were quickly dashed at the end of January 2020 when initial news of a pandemic were reported. Shocking announcements followed in quick succession in the weeks after that. With the COVID-19 pandemic well and truly wrecking medical and economic havoc all over the world, the big question is, what can you do to recession-proof your business?
A recession is not the time to bury your head in the sand and hope that bad times will pass. Bad times certainly will pass but the time to recession-proof your business is NOW. NOW is the time to make the changes necessary to ensure that your business survives and even thrives during the economic downturn. A recession presents an opportunity to spend more time working ON your business rather than IN it.
Warren Buffet once said, ‘You only find out who is swimming naked when the tide goes out.’
There is no silver bullet to recession-proof your business. Here are our top 5 strategies.
Strategy 1: Improve the Quality of your Financial Records
If you find yourself regularly procrastinating over bookkeeping and maintenance of other records, you may find it difficult to have your finger on the pulse of your business.
Some key indicators that you need to be regularly in tune with are:
- Cost of sales/goods sold
- Overheads and other expenses
- Accounts receivables
- Accounts payables
- Cash at bank and cash on hand
- Sales in pipeline
Besides, being up to date with tax lodgements is also key to accessing the Federal Government’s Stimulus Package and business grants offered by your State or local council.
Strategy 2: Plan Ahead
Failing to plan is planning to fail.
- Forecast your likely cash position at the end of each month
- Identify any fluctuations that may lead to potential cash shortages
- Plan to ensure that you meet your various taxation payment obligations
- Re-schedule any major capital expenditure
- Plan to pay down debt (if possible) or at least keep on top of payments to ensure that your credit file is not adversely affected.
- Provide prospective lenders with key financial information including loan serviceability. (It is a good idea to have financing in place for your business before you need it. Lack of liquidity causes businesses to fold more so than a lack of profitability.
Strategy 3: Unlock the Hidden Cash in Your Business
- Debtors – Follow up on unpaid customer accounts. You are not in the business of ‘bank rolling’ other businesses. If you have to take out an overdraft to fund your operations, you are really taking it out to fund your customers’ operations.
- Investigate alternative suppliers and explore their prices and terms – Keep your suppliers on their toes and make sure your suppliers earn your business
- Work-in-Progress can be a real hiding place for cash – Have a plan to complete what you can as soon as possible in order to be paid. Or look into progress payments by your customers.
- Stock is really cash piled up in your store room – Have a plan to move your inventory out the door as quickly as they are ordered in.
Strategy 4: Marketing
The knee jerk reaction for most businesses operating in a challenging environment is to cut advertising and marketing immediately. It is common for businesses to adopt a negative approach in recessionary times and cut expenditure. Your competitors might be ramping up at the same time that you are cutting back on your marketing efforts. Marketing may be expensive and eating into profits (if any) in the short term. But the last thing you want is for your customers to forget your business and move on to your competitor when the economy improves. Take advantage of grants offered by your State Government or local council to pay for marketing expenses.
Strategy 5: Hold On To Your Best Employees
In a downturn, your best employees may also have financial problems of their own. If you don’t look after them, they might look to change jobs (to one of your competitors) to satisfy their needs. Remove the deadwood from your payroll and let go of any employees who are not up to the task if you have to. However, your best employees should remain with you during bad times as they are the ones who will help you ride out the downturn and be the first to help you hit the ground running for the economy bounces back. Take advantage of the downtime to give your employees time off to upskill and keep up-to-date with continuing professional education. If your business is eligible for the JobKeeper program, enrol for it to help you save jobs.
Disclaimer: This blog post has been simplified to cover some key points of how to recession-proof your business. This should not be construed as advice from Glint Accountants. There are many other factors to be considered and each business situation is unique. Therefore, we encourage readers of this blog post to contact Glint Accountants for assistance with their specific circumstances.
Geraldine Lee is a Fellow of CPA Australia and successful business owner with experience in surviving more than one economic downturn during the last 25 years. Contact us at Glint Accountants if you require advice and guidance to ensure that your business survives and thrives during the economic downturn.