In part one of this two-part series we discussed "turning adversity into opportunity". We also looked at key factors to assist you develop your "strategic advantage" in order to sustain and grow your SME – in spite of volatile and unpredictable economic conditions. While these considerations were focused on customers, marketing, service and business development, this piece will focus more on internal aspects.
Now, successfully weathering difficult seasons in business also calls for an adept business strategy based on "easy-to-implement" steps. This includes introspection which will put the spotlight on elements such as your expenses, sales components, cash-flows and receivables, to name a few. Essentially, these point towards practical considerations that will need to be efficiently addressed internally, in order to survive and grow.
We will now look at just five key priorities that should ideally make your list.
Identify unproductive business segments
If you have explored all avenues to try and salvage or "turn-around" certain segments without any reasonable hope of success, then eliminate the part of your business that is not contributing.
Scrutinise your overhead costs
This applies mainly to those variable expenses such as electricity consumption, stationery and consumables to name a few. This means that in the event of a financial crisis you will have a lifeline to rely on and won't need to immediately start making sacrifices you cannot afford such as losing your premises. Your fixed costs such as rental or bond repayments can continue unaffected, while variable expenses are temporarily curtailed.
Analyse different cash flow scenarios
Try to analyse the effect a 5%, 10% or 25% drop in sales would have on your cash-flow. Remember to do this on a regular basis due to dynamic industry and market-related conditions. You can prepare different schedules such as 12, 24, 36 month and even longer cash-flow forecasts for different scenarios. This allows you to observe the impact of these declines, and also allows you to make contingency plans for uncertain times that may emerge along your journey to "business success"!
Stay on top of receivables
Understand the makeup of your receivables and make sure they're 'collectible'. If you offer a 30-days collection period, or payment plan, then clients should be meeting their obligations timeously. Your debtors controller should send timely invoices, reminders and have collections steps and procedures in place to handle any non-payment or delayed payment situations. This will minimise or possibly even eliminate your bad debt while keeping your cash-flow consistent. You will also need to assess customers that repeatedly pay very late and make a judgement call based on their history, as to whether your business can afford to sustain them any longer!
Avoid business expansion
Don't enter into big expansion projects during economic downtimes. Of-course you can spend time planning towards expansion, but timing will be critical as it must coincide with an upswing in revenues. You can also stagger your expansion as the market starts to gradually pick up.
By prioritising the afore-mentioned practical steps, and by effectively focusing on your key development objectives, you will be able to successfully navigate your small business during difficult times. Considering these factors when markets are positive will place you in good stead when challenges emerge, and global forces at play threaten your sustainability. This will offer you a strong competitive advantage, enabling you to enjoy success irrespective of economic fluctuations!