Tips from our team on preparing your business for the new year.
With high inflation, high interest rates and increasing wages, all signs point to 2023 being a year in recession. That said, sound preparation and strategies can do a lot to help offset the effects of any economic downturn. What should you be doing in your business right now to put your business in the strongest position possible to manage a recession?
We asked several business experts from the BSP Advisory team for their advice:
“I would focus on retaining - staff, cash and customers”
Ensure staff are happy and you are listening to their stresses as they cope with inflation. Cut costs where you can and build cash reserves, delay capital investment and minimise inventory, spend time with your key "A" customers listening to the changes and challenges they are facing and work with them to retain their business. Once that is done, the rest is marketing!
“It's a good time to conduct a thorough review of all aspects of your business”
Here's a list of things you can inspect and address before we enter the new year:
- Assess pricing - ensure margins are retained
- Get debtors ledger current
- Assess and implement clear Credit Termsv
- Review stock levels and manage inventory
- Review all overheads line by line
- Ask suppliers to review supply and terms
- Get in touch with your clients, ensure relationship is strong
- Review sales pipeline - ensure enquiry levels are good, conversion is good and margin is good
- Ensure there is an R.O.I. on all promotional activity
- Look at actual productivity - improve where necessary
- Review R.O.I. per labour unit and asset
- Streamline your processes and improve efficiency
- Make the hard calls now
- Initiate conversations and share information with your bank and Accountant
And lastly, stay healthy and get outside support and advice to help you implement change.
“Firstly, many businesses actually thrive in a recession cycle when they have properly prepared for the event.”
A business owner has only to apply 3 'heat maps' on their business operation to check how ship shape their business actually is ready for any storm ahead.
Heat Map 1: Cashflow
If your business is not truly cash positive before any recessionary downturn then how do you expect it to not run out of cash during a recession? A business closes when it runs out of cash.
Heat Map 2: Product/Service
How well does your current offering match the need from your customer for the problem they are looking to solve? Recessions mean people spend less so if your product offering is not totally customer needs focused the chance is that in a recession when money is tight you may get looked over.
Heat Map 3: Relationships
How strong is your relationship with your customer base? Do you reach out to them on a regular basis? How? If your sales strategy has primarily relied on customers finding you then remember there will be less customers looking for you in a recession. Build a strong relationship with your existing customer base as it is this group that will keep the doors open in any recessionary downturn.
“Here's four quick tips to prepare for a recession: ”
- Secure capital before it’s required – build up a cash reserve and/or explore options for a finance facility to help get through slow periods.
- Defer any large capex until the economic outlook starts improving and be cautious before committing to things such as a new lease, opening of another branch, hiring more staff.
- Go through opex with a fine toothed comb to reduce where possible but don’t cut marketing spend if at all possible – big opportunity during a recession to maintain your exposure and stand out as many other businesses cut back on marketing.
- Watch cashflow like a hawk and know your break-even figures
“Look at every problem as an opportunity - a state of mind!”
Do a strategic scan of the operating levers in the Business Success Framework:
The LEVER opportunities will be in the left side:
- Product & Services: do more of what, do less of what?
- Marketing: Assuming you have spent the last six months or two years build the Marketing foundation ... time to crank it up at the expense of your competitors!
- Distribution & Sales: Classically a very under-funded 7 supported lever – good measures for effectiveness – maybe some sales training ... again, crank up the focus with measurable targets!
- End-in-mind: grow or maintain at the expense of your competitors ... even in a declining market!
“These ten aspects of business can help you manage a recession in 2023 ”
High level strategy. Are there likely to be opportunities we can either take or make in the new year? Maybe some products or services we can offer more or less of? Ideally “start with the end in mind” as we want to be well positioned to take full advantage of the boom times which often follow a slowdown
Cash reserves and projections. It's worth doing some scenarios for different levels of change in turnover and cash flow to see if we have the cash reserves or facilities in place to weather the storm. NB, even if we maintain sales we can fail due to the domino effect of key customers having financial problems.
Can we focus on “safe” customers who can pay throughout e.g. Govt entities. Can we refocus on “must spend” rather than discretionary spend e.g. Automotive – WOF or replace a car that failed a WOF more than just replacing a luxury car where the ashtrays are full or optional bells and whistles
Staff – retain throughout if possible and be ready for the upturn. Communicate well as everyone is nervous. Maybe repurpose some spare time on additions to the workshop or other projects. May be a time for reviewing how we do things – possibly some process improvement work to be more efficient or implement new systems
Staff engagement – may be an opportunity to do things with staff or offer unpaid leave options with job security. A possibility to move higher up the “employer of choice” scale for your industry. Maybe a team trip to a top comedy show. Doing something fun which the competition are not.
Marketing – may need to work harder for a larger share of a smaller market but monitor Return On Investment on marketing spend.
Sales channels – how robust are our sales channels?
Pricing – is there room to move on pricing possibly in response to moves by the competition. Also can we negotiate better prices / discounts from our suppliers.
Competitor analysis – worth revisiting this. Maybe even consider buying out some of the competition.
Monthly Business Review – becomes more important to keep a close eye on how the business is performing. Particularly the 3 month cash flow forecast and Key Performance Indicators.
Costs – cutting costs where possible will help with cash flow but try not to let your accountant get too excited by this. This is probably not the time to buy a new yacht for transporting your Maserati around!
SBNZ Resource Centre Tools
Alongside the tips above, we'd like to shine a spotlight on some of the tools and resources members can download from Small Business New Zealand - a centralised hub for business owners to access resources, tools and advice.
Policies and Procedures Template. All businesses should have a list of polices and procedures that cover such things as leave, conflict resolution, drug and alcohol use and vehicle usage to name only a few.
Writing a list of policies and procedures can take months but SBNZ makes it easy for you by providing a full and common list of 100 policies and procedures all written out as commonly used.
You can quite simply download the word document and make small changes where necessary although in most case they will be suitable as already written. This will save you significant time if you do not have a full P&P resource in your business.
This can then be shown to new employees and existing staff when needed to ensure everyone is on the same page regarding expectations of the business.
To download simply go to the resources Centre on the right-hand menu then go to the Systems and process folder, templates folder and download the policies and procedures template.