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Practical advice for recession proofing your
business
1st November 2008
Can SME’s stay afloat during a downturn? Of course they can,
says Harry Parkinson, Managing Director of Close Invoice Finance in Ireland. His
practical guide gives growing businesses tips to emerge fighting fit for the
future.
Making business predictions for the immediate future can never be an exact
science. The only certainty we have is that the economic downturn will
definitely affect the way most SMEs do business in the coming months.
However some practical steps should ensure SMEs are well equipped to deal with
the worst the economy can throw at them.
Top tips for dealing with the credit crunch are:
1. Plan for the future
Ensure you regularly review past performance and then make short, mid and long
term forecasts based on the health of your order book, debtors and any major
planned expenditure plus external factors such as inflation and new business
projections. Flexibility is the key to successful planning so don’t shy away from the
difficult ‘what if’ questions. It’s exactly this scenario planning which you’re
going to need when times get tough.
2. Stay in touch
Businesses who don’t talk may miss out on valuable support and could miss early
warning signs of a client getting into financial difficulties – with disastrous
consequences.
We recommend that you keep in regular contact with:
- Your accountant/advisers - They will offer impartial advice on how to manage
your business and resolve any issues.
- Your bank/funding providers - By keeping your financier regularly informed of
your progress, you are helping to safeguard your funding and maximising your
chances of obtaining additional finance.
- Your clients - Keeping in touch with clients may seem obvious but, under
current circumstances, it’s important to keep tabs on their payment records and
business performance to avoid being stung by bad debt.
3. Be realistic about your growth plans
In our recent survey, the Small Business Finance Barometer, half of SMEs polled
in Northern Ireland expected their businesses to expand this year. This optimism
is highly laudable, provided SMEs fully comprehend just how tough it is at the
moment.
To give you the best chance to succeed, you should:
- Set realistic targets and make sure you have the funding, staff and facilities
in place to deliver on these objectives.
- Identify what sets you apart from the competition and play to these strengths
when pursuing new business opportunities.
- Keep your clients happy and encourage them to refer new business to you.
- Look at diversifying your offer, without involving excessive capital
expenditure.
4. Keep your costs under control
Keep a tight reign on your cost centres and explore any potential routes to cut
down on expenditure. To minimise the money you draw from your own business, cut
back or eliminate credit card usage.
Look critically at your recruitment policy and don’t take on any additional
members of staff unless strictly necessary. If you are deluged with work, assess
if this is a short or long term issue. Considering the freelance option may
prove more cost-effective.
Look at supplier costs and get them to retender if you think you’re paying over
the odds.
5. Think creatively about funding
Around seven in ten SMEs in Northern Ireland currently use bank loans as their
primary source of working capital. However, with banks becoming reluctant to
lend to all but the least risky deals, businesses may need to reconsider their
funding strategies.
Spread your finances rather than keeping them all with just one provider. This
links you to a number of potentially useful funders should you need additional
finance. You should also consider new funding routes such as invoice finance
which could help you manage your cashflow.
Invoice finance allows businesses to raise funds, by turning invoices into cash.
Currently a relatively small percentage of UK SMEs raise capital in this way but
in a market where the threat of higher loan costs and a dearth of available
liquidity looms large, invoice finance can offer a real competitive advantage
and a flexible, non-traditional way to beat the downturn.
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