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.

Managing cash flow

  • 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 term.
  • 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 managed.
  • 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 outright.
  • 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 useful.
  • 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 encourage 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 records easily.
  • 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 it.
  • 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.

Resources

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