Are you Ready for:
Quick Assessment of your Survival Skills?
Have you got essential instinct to survive in tough times of RECESSION?
What is Connotation of Recession?
Recession means contraction in business cycle caused by any of the factors such as:
- Financial crisis.
- Any external trade shocks.
- Any adverse supply shocks.
- Bursting of economic bubble.
- Natural disaster.
- Pandemic like CARONA – COVID 19.
Is dropping your prices your first course of action when sales begin to slow?
Perhaps No!
High time-explore several other options.
Otherwise, you are sure to be heading for deep trouble…
WHAT IS REQUIRED NOW?
- Another plan
- A more effective strategy to combat your competition in a tough market.
Several essential factors will determine your ability to survive the downturn.
Just Identify them to know:
- What these factors are.
- How to measure them.
- How to interpret the numbers and decisions required for survival.
So, What Are The Ways To Recession – Proof Your Business?
There are just 7 Steps to Follow and Overcome Your Threat to SURVIVAL.
Step 1 – Don’t Panic!
- You Call The Shots.
- Decide to act in response to a crisis.
- Solidify your grip on the situation.
2. Make Good Decisions
- Clarity brings creativity.
3. Become A True Leader
- Don’t Panic the herd.
- Your staff will be looking to you for leadership.
- Show them through your words and actions that you’ve got a plan.
- Convert them to your greatest asset in surviving and thriving through tough times.
Take Rational Actions Now!!
Remember there are people relying on you to make good decisions about their future as well as your own.
Predicting the unpredictable?
- Make your business bullet-proof.
- Stay ahead of the curve and your competition.
Restore your sense of control by taking Rational Action now while the future is still uncertain.
Working through the action strategy will show you :
- Where things need improvement.
- Where you’re already doing a great job.
Step 2 – What Are Your True Costs?
How do you decide what to charge for your products or services?
Pricing is one of the most complex areas of running a business.
Many business owners fail to understand the true costs of producing and selling their products or delivering their services.
Follow Simple Pricing Guidelines to Avoid the Pitfalls.
- Determine the cost of delivery of the product or service to customers excluding overheads.
- Know your overheads so that you can work out your ‘Break – even’ situation and how much you need to sell.
- Decide how much profit you want and calculate this into price.
- Know your Margin and report on it regularly to ensure it is not being eroded by increased costs.
- Know your customer satisfaction levels.
- Dissatisfied customers won’t pay premium prices.
- Regularly review prices.
- Make small increases to cover increased costs.
- It is much easier to make small regular price increases at intervals throughout the year than one large increase just once a year.
The Costing Challenge
Are you selling all the hours you are paying your staff for?
Write down everything you can think of that is cost to selling your product or service.
Step 3 – Profit & Revenue
Which one is driving your Business?
Profit needs to be the driving force in your business.
Every Rupee saved bolsters bottom line.
Whereas every Rupee earned of extra Revenue(sales) may only be a matter of Rupee onto the bottom line as a sale carries with it direct costs and overheads.
Concentrating on growing the revenue side of your business–
Increase in your Profit first will allow for sustainable Revenue growth.
ACTION REQUIRED.
- Which are your most Profitable Products or Services
- Which are your most Workable Strategies.
Discovering the answers to these 2 questions will put you in the powerful position of knowing where to focus your energies for maximum impact today!
INCREASE PROFIT
How to Collect Information You Need
There are 3 Questions you’ll need to ask.
from your Profit & Loss Statement
to find the Answers.
- What is our Revenue this past year?
- What is our Cost of Goods Sold/Direct Costs?
- What are our Overheads?
Making savings in your Cost of Goods Sold/Direct Costs and Overheads will directly lead to an increase in profits.
Examine thoroughly your Profit & Loss Statement and find where savings can be made.
Action Required
- Work out your cost of Goods Sold Percentage (COGS / Revenue) * 100
- Work out your Overheads Percentage (Operating Expenses / Revenue) * 100
Increase Profits – How to Identify Savings
Cost of Goods Sold/Direct Costs
What types of Expenses are classified as Cost of Goods Sold/Direct Costs?
- Purchase of stock to sell.
- Movement in stock held.
- Freight costs to get goods into and out of stock.
- Labour costs relating to production of a product or service.
- Importing costs -duties etc.
- Discounts given.
- Stock adjustments and wastage
- Purchase returns and allowances
- Raw materials
- Manufacturing costs
- Packaging
How to get Cost of Goods Sold/ Direct Costs under control
- Look at what you are buying -products and services.
Spend some time investigating and negotiating better deals and more efficient ways of delivering. For example, a business that delivers good to customers weekly manages to agree with most of their customers to drop back to fortnightly deliveries to achieve a 50% cut in one of their major costs! - Don’t underestimate your value as a customer – never be afraid to shop around for other suppliers.
- If you are a good customer, they will be bending over backward to supply you at the right price.
Overheads
This is an area where you can make massive savings. Do a review of all overheads and ask yourself these questions:
- Why am I spending this and what ‘value’ does it deliver onto the bottom line?
- Should I cut it out?
- How could I do this differently to achieve a similar result?
- Who else could deliver this product or service and how much would they charge?
Action for Purchase Orders
Introduce a Purchase Order System into your business i.e., no money gets spent unless you, the business owner approves it.
Step 4 – Narrow Your Focus
Now you need to Act based on what you’ve discovered.
Right time to apply.
The 80/20 Rule – 20% of your customers, products or services will provide 80% of your business.
You know what you’re selling and to whom.
You’ve determined which products, services and customers are making money and which aren’t.
To maximize profit, grow the profitable lines and customers.
Pay Attention to:
- The customers who are most profitable.
- Products and services that provide 80% of your profits.
- Sack some customers or discontinue some product line of services to focus on the ones that they are really earning money.
This is not the time to have cash flow tied up.
- With slow moving product lines.
- Or services that are expensive to deliver.
- Or customers who are slow to pay.
Now focus on your strength.
This will fortify your business to whither the storm that may lie ahead.
Step 5 – The Secrets of Managing Cashflow
There are 3 Things you can do improve Cashflow.
Your precious cashflow is more than likely being held up in one of three places:
1. Your Debtors/Customers –
- Are your customers dragging out on their payment terms?
- Your debt collection strategy may need a review to get your cash flow moving again.
2. Your Suppliers
- Have a strategy to ensure you take advantage of every day of credit available without straying from your terms.
- Keep the money in your bank account for longer.
- Negotiate better terms with suppliers.
3. Stock on Hand or Work in Progress
Look for efficiencies in your company’s ordering system and job completion procedures:
- Invoice jobs on completion and not at month end.
Cashflow Worksheet
1. Calculating Average Days Receivable
This is average number of days it takes your customers to pay you.
Compare this to your stated terms of trade.
2. Calculating Average Days Payable
This is average number of days it takes you to pay your suppliers.
- Are you paying too soon?
- Not talking advantage of every day of credit in your trading terms?
Calculate the number of days money is not in your Bank Account.
- If you know where your cash is there’s No Need to Panic,
- You just need to improve your methods for getting it back into your bank account.
- If you’ve not got enough information in your accounting system to complete the previous Cashflow Calculations, then again there’s No Need to Panic.
- Control the time lag between your paying for goods and your customers paying you.
- This will show you where your efforts need to be focused for survival.
Knowing your cashflow position with regular monthly projections & reporting will be important for all aspects of your business Survival & Growth through this period of economic insecurity and credit scarcity.
Any business wanting to borrow money from a bank will have to prepare Budget & Cashflow Projection to show its repayment capacity.
Step 6 – Borrowing to Grow
In case, you are considering Borrowing from the Bank while the economy is uncertain –you have to prove your ability to pay the money back.
You’ll need:
- Budgets
- Recent Financials and
- Forecasts.
Looking at your ability to unlock cash from within your business may be a much simpler and ultimately more profitable exercise.
- You’ll know EXACTLY where you stand financially.
- Any decision is based on the facts rather than wishful thinking.
- It is not a good time to be taking big risks or going off track with your business.
- Focus on your profit and its growth.
- Rupee saved is a Rupee earned!
If you’re borrowing just to sell more without working on your profitability you may be headed for trouble!
You’ve still got to pay it back in an uncertain economy.
Step 7 –Get Over your Tension
With your right calculations, you can feel much more confident, that it’s not all doom and gloom for your business.
Now you understand where the real financial problems lie within your business and how to identify simple ways to fix them.
IN RETROSPECT
It can hardly be stressed that business owners like you – who understand the importance of having a system of solid financial management, are the real eligible candidates to survive the uncertainty ahead in business.!! Those who apply these principles will be the fortunate business owners set for a sustainable growth trajectory.
“This recession presents an opportunity for entrepreneurs to develop the big-picture strategy and find ways to make their business survive the worst of times. After all, being an entrepreneur is about giving everything you have when the going gets tough and never giving up. Like the saying goes, if you truly love what you are doing and you believe in it you won’t give up on it.”
Ruth Oluronbi, Columnist
