There’s no doubt it’s tough out there, but these common sense, and sometimes contradictory, business tips could make all the difference to your business.
Tip: Get aggressive on getting paid
The common sense bit: If you’re going to be shafted when a creditor goes bust, get to the top of the queue by shouting loudest.
The detail: Businesses need to get money in.By employing a lawyer when you send reminders, recovering debts and claiming interest on late payments can advance the clients’ position within the chain of creditors, says John King of Forshaws Davies Ridgway, a law firm in Warrington. “In a market like this, whoever shouts the loudest is going to get paid. So if you’ve not got lawyers acting for you, you’re going to find life tough.”
Tip: Pay less for your insurance
The common sense bit: Go through your insurance policies with your broker and get rid of what you don’t need. Tighten up what you do.
The detail: A close relationship with your broker may allow you to maximise the use of premium instalment facilities to spread the cost over the insurance period. Get to know your suppliers, customers and sub-contractors better. When money is tight many firms reduce or, perhaps unintentionally, default on vital cover, says Ged Smith, regional managing director of Jardine Lloyd Thompson’s Manchester office. “If they have inadequate or non-existent insurance in vital areas such as product liability or product recall, you may be forced to pick up the tab if something goes wrong.”
Tip: Provide strong leadership
The common sense bit: Tough decisions call for tough management. Be firm, determined and unsentimental.
The detail: Complex times require complex business leaders. That was the message from one of the UK’s leading voices on human resources, speaking in Manchester. David Fairhurst, senior vice-president and chief people officer at McDonald’s Northern Europe, was addressing Manchester Metropolitan University where he is a visiting professor. Fairhurst, who has been instrumental in changing public perceptions of McDonald’s, said business leaders needed to offer “complete leadership”, striking the right balance between showing intellectual ability, compassion with staff, and having the guts to “do the right thing”. “Many leaders may have two of these qualities, but few have all three,” said Fairhurst. He added that the greatest tragedy of the modern workplace was that the power of people was largely untapped. “Surveys indicate time and time again that fewer than one in five of the UK workforce is actively engaged with their business. Organisations are failing to tap into their most powerful force.”
Tip: Work out who owns your goods
The common sense bit: Check your terms and conditions so you own what you sell, until you’ve been paid.
The detail: Although it is not unusual to be reactive in the context of so much uncertainty, steps such as reviewing terms and conditions to ensure you retain ownership of your goods until payment, careful monitoring of your key customers, efficient debt collection and assessing the credit worthiness of new customers can be effective ways of minimising risk, says Chris Ross, an associate in the corporate department of Manchester solicitors George Davies Solicitors.
Tip: Acquire weak competitors and suppliers
The common sense bit: There will be opportunities for those with money to spend in terms of mergers, acquisitions or buying subsidiaries of loss-making businesses to bolt on their own.
The detail: According to Gary Lee, partner at Begbies Traynor in Manchester, “Keep an eye out, see what your competitors are doing and look for vertical and horizontal integration; buying up companies along your supply chain; or taking over your competitors. There is money to be saved by taking control of the production process.”
Tip: Celebrate success
The common sense bit: Hey, it’s tough, but keep morale up by rewarding mini victories.
The detail: While business failure understandably makes the headlines, there are lots of compelling stories about business success. Recession is a time when we should be acknowledging good news. Employers should recognise the achievements of their staff and we should be celebrating success stories in the hope that they inspire others.
Tip: Review what you do
The common sense bit: Review absolutely everything using recognised standards.
The detail: According to David Teale, chief executive of North of England Excellence, this downturn is a good time for companies that haven’t already done so to put in place a structured improvement programme – not some one-off initiative or a panic response to a crisis, but procedures that become a regular and recurring part of the normal business planning process.
Tip: Grip your cash control
The common sense bit: Charles Lucas, consultant for accountancy firm Beever and Struthers, says: “Control payments coming in and be careful what gets paid out.”
The detail: Regularly review your debtors’ list to ensure you are aware of exactly who owes you money and the age of the debts. Be cautious about extending credit to retain sales levels. The only good customer is a paying one. Consider using ‘Reservation of Title’ clauses when selling goods, and if you do already, make sure that they work. Take advantage of extended credit wherever possible.
Tip: Watch the numbers
The common sense bit: Make sure you know your sales position every day.
The detail: Monitor performance against budget on a regular basis. In addition, to ensure you identify dangers signs for your organisation in a timely manner, consider the following: production of monthly/weekly cash flows. Monitor the key performance indicators for your business and talk to your staff as they may well be able to contribute ideas and solutions.
Tip: Think of tax as cash
The common sense bit: Review your tax position – don’t pay what you don’t have to and review your position.
The detail: According to Brian White, tax partner at Deloitte: “In a difficult economic climate, cash management and tax strategies can prove invaluable for a business looking to improve their financial standing. “Although the old adage says that ‘cash is king’, a company feeling the financial pinch may first like to consider the outlook that ‘tax is cash’. With that in mind, methods to monetise losses, defer gains and generally improve tax efficiency can all assist a business’ cash position.”
Tip: Claim tax credits for research and development
The common sense bit: Many kinds of research and development can have a tax credit, make use of it.
The detail: Brian White at Deloitte says: “Businesses that carry out research and development (R&D) can reduce their tax bills by claiming relief against any R&D expenditure. The rules surrounding R&D are quite broad, which is something that very few people realise. R&D relief is not just limited to ‘scientific’ expenditure – it can include process improvement and software expenditure, and the relief applies across a wide range of industries.”
Tip: Smarter invoicing
The common sense bit: Process invoices to claim back the VAT quickly, and make sure you aren’t paying twice.
The detail: All too often businesses will only process their invoices once they have been approved by the company. In turn, this can cause unnecessary delays in recovering the VAT against those invoices. In this instance it is possible to negotiate a one-off cash injection into the business from HMRC to reflect these delays. Businesses should also be careful to investigate their accounting processes to ensure that they are not making errors such as payment duplication. Large companies, given the size of their operations, often make these mistakes and end up issuing overpayments without ever being the wiser. This can turn out to be a costly mistake. Data mining software is now available to detect these types of errors, and they can prove their worth in helping a business cut down on unnecessary expenses.”
Tip: Handle redundancy properly, or it will cost you
The common sense bit: If you have to let people go be very careful, and be transparently fair.
The detail: There are ways to deal with redundancies without having to affect morale and bring negativity into the business. For example, a business may consider offering voluntary departure programmes, as opposed to administering a consultation process and full-scale redundancies. This option is more effective as it remains limited to a small amount of people rather than the whole group. This route also gives people the option to leave with a settlement package that is agreed on amicable terms.
Tip: Don’t cut marketing
The common sense bit: Don’t cut marketing, just be smarter.
The detail: The marketing and promotional budget is often the first casualty when companies are hit by a downturn. It’s the easiest way to cut costs, but it is almost certain to be a false economy, argues Simon Brownbill, marketing director of Hurst Accountants in Stockport. In fact, making best use of marketing can help pull companies through the bad times and put them in an unassailable position when conditions improve. Brownbill was one of the main speakers at a worldwide accountants’ convention in Salt Lake City. The theme of the convention was “marketing in a downturn” and he had many tips for the audience. Here’s his top ten:
1. Think of your customers and clients as people first, companies second. This will change how you communicate with them.
2. Start “dating” your customers again. Remember how much effort you put into winning them in the first place.
3. Change your message – make it relevant to the downturn but always be positive.
4. Focus on a few key messages, and make them timely and relevant.
5. Invest in one-to-one, focused marketing including hospitality.
6. Emphasise your value – customers will be estimating the rate of return: the effort they will have to put in to get the most out of you.
7. Remember the customer owns the brand – you are only as good as the last experience, so keep on top of customer service.
8. Market the fact that you don’t have dog customers – your customers will want to know you are totally focused.
9. Create anticipation – market your propositions early.
10. Do not cut your marketing budget – others will do that, and you will find you get more bang for your marketing buck.
Tip: Review everything
The common sense bit: Get everyone together and think about how the business can be stronger, especially in the long term.
The detail: Tom Leach, managing partner of Burnetts in Carlisle, says: “It is difficult to describe a recession as a positive thing because on the whole it clearly isn’t. Hardship will be inflicted on many, and in varying degrees. “A recession does, however, move some organisations from a comfort zone where opportunities to progress had been missed into a much more challenging environment. The threat of a danger to survival, or at least a threat to a standard of living, can be a powerful stimulus for an organisation to re-examine business, its strategies and cost effectiveness. It generally leads to greater focus, vision and direction in seeking opportunities.”
Tip: Don’t fire – train
The common sense bit: Instead of spending your money on making redundancies, invest in training and education, which will allow you to move your employees into any vacant positions.
The detail: Although it may not be an option for everyone, investing in training to improve the company’s skills base while the business is less busy can put it in top condition for when business picks up.
Also in: February 2009
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