Create a strategy to survive the downturn
Recessions have a devastating effect on small businesses,
obliterating thousands and leaving thousands more in serious
financial difficulties. With an estimated 13.5 million people in
the UK employed by small businesses, it's crucial you avoid
becoming part of another statistic.
- During a recession flourishing businesses, regardless of what
they specialise in, share some common elements. These include
awareness of market conditions, competitors and financial
planning along with a clear vision of goals for the short and long
- Focus on maintaining a healthy cash flow. The
saying 'cash is king' has never been as reinforced as it is during
a recession - so make sure you maintain a healthy cashflow. This
won't necessarily guarantee your fortune, but cashflow management
will help unlock capital and transform bottom lines.
- Cashflow is essentially the measure of a business'
ability to pay its bills on time and on a regular basis. Be
aware of how much gets spent and for what, VAT and your returns by
making sure all aspects of accounting are in order and effectively
- Go back over your relationships with banks, suppliers and
customers to check they are fully aware of all payment dates
and their terms. Remember - you want your customers to stay
in business, so speak to them to find out whether moving key dates
or adjusting payment terms will help.
- Speak to your suppliers: find out whether they
will offer you extended credit terms. If they won't, consider
ordering less stock more often and even leasing fixed assets or
getting them on hire purchase rather than buying them
- It's important to identify potential problems before they
occur. Keep a close eye on the peaks and troughs in your
business' cash balance and watch market conditions, and use your
forecasts to plan borrowing. Remember: many banks require
forecasts before considering a loan.
Managing your customers
- Good credit management is essential during a
recession - no company can afford to not take it seriously,
especially when the availability of credit is tight.
- Make sure you understand your customers. Check the
exact name and legal status of each of customer and perform credit
checks when possible. Remember, though: credit ratings aren't the
only means of judgment. References from other suppliers and a
company's assessments on the customer's propensity to pay are also
- Be clear on your payment terms, especially when
you take on a new customer. Agree payment terms at the order stage
and set them out clearly, in writing. Don't make any assumptions -
invoices won't necessarily be paid in 30 days or end of month.
- Make sure your customers understand your
timescales by printing the payment terms (and penalties) on
easy-to-understand invoices which go out on time.You might also
want to encouragw customers to pay quickly and on time by offering
discounts for prompt payment.
- Get your invoices right. Don't give your customers
an excuse to dispute your invoices and delay their payment by
paying attention your the accuracy of your invoices - and don't
forget to quote order numbers, so your customers can refer to their
- Once an invoice has been issued, keep an eye on your
debtors. For large or important amounts, make phone contact
before the due date to make sure the payment is still on track. And
if a payment doesn't arrive on time, don't be afraid to ask for
- If contacting the debtor to try and resolve the issue doesn't
work, you can charge interest on the payment or add
debt recovery costs. If that doesn't prompt them to pay, you can
hire a debt collector to help them. They'll have the expertise and
time to focus on retrieving the debt. If all else fails, taking
court action can also be considered, although this should be seen
as the last resort as it can cost time and money.
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