Next year will be a tough one for many companies. So this is an ideal time to get your business fighting fit, writes John Sanders.
Taking the time to think about where
your business is going may seem like
a luxury. But fresh ideas pay dividends
and are essential to the survival of any
organisation. A corporate health check
can flag up warning signs of trouble such
as falling cash flow, delayed payments,
declining orders or increased staff
turnover. It will also benefit booming
businesses at risk of overtrading. And
those who hear the alarm bells early will
be in a far stronger position to put the
problems right.
Any corporate fitness regime will include combing through the numbers and talking to people. Most small businesses either have poor budgeting processes or none at all, according to advisory company Venture Wales.
Many see budgeting as a burden or an annual routine to satisfy others. They don’t understand how this process helps their organisation, says managing director Phil Cooper.
Modern accounting software allows managers to keep a close eye on their financials with little effort. In the current economic climate, Gareth Bray, chief executive of adviser Business in Focus, recommends at least monthly monitoring, or better still, a finger permanently on the pulse.
Some bosses find regular monitoring easier than others. “It depends what type of individual you are as to whether you’re on the ball or not. With some people it creeps up on them and smacks them on the head. But others know what’s coming. They’ve identified where the key threats are coming from and make theappropriate adjustments,” says Bray.
Communication is the other key factor, especially with your main clients, which frequently means the 20 per cent who account for 80 per cent of your business.
“You really need to get close to that 20 per cent to make sure you know what their plans are and to look for any warning signs that they may cut back,” says Bray. “Then you can start to adjust your own operations and look for new customers.”
The experience of accountancy firm PricewaterhouseCoopers suggests that when companies get into trouble, it is usually down to poor planning by management.
Partner Rob Lewis singles out four areas to focus on to survive a downturn: strategy, finance, operations and stakeholder management.
Reviewing your strategy means asking some fundamental, even uncomfortable, questions about your business model. But by doing so you can ensure you have the operational flexibility to handle hard times. On the financial side, companies that emerged from the last recession as sector leaders had more cash on their balance sheets than the losers.
Despite the credit crunch, debt funding is still available to businesses with a positive, well-thought-out action plan and a robust cash position. The advice is to maintain the dialogue with your bank manager and remember that they do not like unpleasant surprises, even in the best of times.
Lewis advises frequent communication with all stakeholders. “Keep shareholders and lenders informed, stay on the customer’s agenda and safeguard assets by keeping up dialogue with employees.”
He adds that “much of this might seem like common sense, but in our experience it is not common practice”.
Getting a second opinion has rarely, if ever, been easier. The Welsh Assembly Government provides direct and indirect support. Welsh Universities are more active in the business community. And businesses can turn to their peers for specialist help with everything from IT to risk management.
Groups such as Business in Focus and Venture Wales can provide advice on turning arounda tricky situation, while industry forums A SHINING EXAMPLE provide members with the opportunity to learn from the experiences of others.
Then there’s the education sector. “A university is a good place for companies to go, but it may not be the first place they would think of,” says Karen Turnbull, deputy director of the research and enterprise department at Newport University.
Her institution has close ties with industry through its students, 60 per cent of whom are already in work and studying part-time. “We deliver a lot of courses tailored to the needs of employers and a lot of professional qualifications tied in with accounting, marketing and personnel bodies,” says Turnbull.
Companies can also tap into graduate and undergraduate expertise in areas such as design, often at little or no cost since many projects are funded by the government. Through open innovation, for example, students can provide businesses with a fresh perspective on a specific issue.
Turnbull emphasises that some initiatives use undergraduates, “so they may come up with some wild and wacky ideas. But sometimes they are the ideas you’re looking for”.
But companies can also benefit from longer-term projects. GO (Graduate Opportunities) Wales offers work placements typically lasting between six to ten weeks. These are ideal for businesses with a project in mind, but no time to pursue it. GO Wales is a low-cost way for small companies to see how a graduate can help them, with 73 per cent of companies offering graduates further work as a result.
Knowledge Transfer Partnerships (KTPs) offer longer-term co-operation between universities and employers. They can help businesses make a step change, such as improve products, implement a marketing strategy or raise efficiency. The average benefit of a KTP to a business is an increase of more than £220,000 in pre-tax profits, says Turnbull.
Traditional KTPs last between one and three years, so the Welsh Assembly has recently introduced mini KTPs for shorter-term projects. Another scheme funded by the Assembly is Academic Expertise for Business (A4B).
Apart from advice on specific issues, companies also need to protect their assets. An economic downturn makes some risks, including enterprise risk, more likely. It also increases the frequency of everyday accidents and IT breaches because of factors such as lower investment and a possible rise in the number of disgruntled former employees.
Risks related to business continuity, health and safety and meeting legal requirements are the traditional strategic threats. Recently, however, businesses have been adding financial risk, such as the difficulty in obtaining credit, to the list. Simon Thomas, managing director of Creative Risk Solutions, says some businesses are focusing on financial risk at the expense of other risks. But he also says the distinction between financial and generic risk management is being blurred.
Creative’s approach remains the same, though. Thomas likes to spend time with clients to identify and profile the risks to that business, however unlikely they might seem. He then advises on what risks are insurable and suggests ways to manage and control any uninsurable risks. As with so many aspects of maximising an organisation’s performance, he believes information is power. “It’s all about people’s fingers on the pulse in terms of what the business is doing and is likely to be doing over the next month or two.”
That process includes looking for emerging risks. Demand is shooting up for directors’ and officers’ liability in surance, which protects managers in the event of any alleged breach of their fiduciary duties. Other emerging risks include environmental hazards, patent protection and third-party computer fraud.
IT risks are developing rapidly, too, as businesses rely ever more on email, websites and networks. Yet many companies try to cut costs and buy hardware from unreliable sources with no warranty or support. That, believes Sarah Edwards, business development director at Capital Network Solutions (CNS), is a false economy.
“We get called in because they have an issue with performance or perhaps an attack on their system which has brought their entire network down,” she says.
The consequences, she adds, can be serious and include not only lost orders, but also damage to reputation. “You have to look at the bigger picture and think what it means to you if you can’t function for a while.”
An audit often starts with tightening up network security, says Edwards. “Nine times out of ten we find equipment still has default passwords because people don’t consider the security aspects when they get new hardware. That’s such a big mistake. If you do that you are leaving the front door to your business open.”
So, even if your business is thriving, the constantly changing risk environment makes a year-end health check a sensible step. Less fortunate businesses should take advantage of any temporary slackening in activity in other ways, too.
“There will be an upturn and you need to be sure you are not weakening the skills base of your business. In fact, you should really use this opportunity to do more training,” says Bray.
Similarly, Turnbull urges management to ensure that they too make the time to keep abreast of developments.
“With so many companies nose to the grindstone, it is difficult for them to lift their head above the parapet and look ahead,” she says.
In particular, she recommends taking advantage of seminars and networking events. “That gives them information about what new issues are emerging and helps in terms of knowing what’s happening outside the business.”
Also in: December 2008/January 2009
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