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Managing a business during a recession

Predictions abound as to how long the current economic downturn will last and how heavy the price that UK businesses will have to pay.

Whether it is all meant to be over by Christmas or whether the ramifications are to live with us for years to come, it is all too easy to feel powerless before the relentless pressures of vanishing customers, squeezed credit facilities and crumbling profit margins.

There are, however, steps that every business owner can take both to survive and, indeed, to flourish over the coming testing months.

Cash is king

Cash is the lifeblood of every business. It is even more vital than profitability; than a full order book too. A business with healthy looking profit margins or a plump order ledger can find itself starved of cash, but a business with money in the bank is better placed to weather the vicissitudes of our uncertain and stormy economic times.

The mathematics that support cash flow are basic: wherever possible, make sure that more money comes into the business than the business spends. So when customers are tightening belts, do the same to offset the imbalance.

While it is inadvisable to reduce costs merely to make the accounts appear better, now is the time to ensure that suppliers are offering value for money. Examine existing relationships with suppliers and check whether the prices – get in some quotes from competitors – they are offering square up to market rates. Scrutinise the small print of any contracts (it may well be possible to negotiate more competitive terms on any agreements that are coming up for renewal). And never be afraid to ask for a discount for continuing loyalty.

But don’t sacrifice quality of service or product for the sake of trimming a few corners here or there: the reputation of your own business depends on that of your suppliers.

Review the way the business is organised

If the entire operation of a business hinges on the continuous intervention of the owner then something is structurally amiss. Cast a cold eye over the systems that are in place, making sure that staff understand what is expected of them and that they possess the skills and the training needed to fulfil their duties.

Strike up partnerships

Customers, especially business customers, are rarely in the market for just one product or service. The customer database held by one firm could well be of interest to another, non-competing business, seeking to sell complementary products or services that would appeal to the same sort of client.

It may be worthwhile, therefore, to form an allegiance with a business that is targeting customers similar to your own but with an entirely different offering, and then to agree to market to each other’s databases. Recommendations from a business that customers already trust and value can be a powerful sales generator.

Dip a toe into the employment talent pool

One of the most distressing consequences of a recession is the number of people who lose their jobs. Progressive, intelligent, optimistic businesses will naturally regard their staff as the most important asset they possess. So when a competitor releases a good quality sales person or an excellent administrator or a top craftsman, give serious consideration to taking them on. If it is affordable, it could be an investment that will reap rewards long into the future.

Carry on advertising

Come difficult times, one of the first costs to be sliced, if not chopped completely, by many firms in the name of survival is the marketing budget. That way invisibility and, possibly, oblivion lies.

The temptation to regard marketing as an expendable overhead is understandable but often misguided. Rather than pick at the edges of your marketing budget, put it under the microscope. Assess the ratio between spend and lead generation. Should you find your marketing spend produces five times the income, stick with it. Especially if your competitors are reducing their own budgets.

Batten down some hatches but keep the periscope up

People will start spending again. The economy will pick up. Profits will return. The banks will start lending once more. It may or may not be by Christmas. It will, however, happen. In the meantime, control your expenditure, interrogate non-essential costs and protect your cash flow; but keep an eagle eye on the future so that when the recovery heaves into view you are ready to exploit it.