Managing the financial crisis – what’s your plan?
The Federation of Small Businesses (FSB) conducted a snap poll in September that highlights the impact of the credit crunch on small businesses. The results revealed that over 80% of respondents said their costs had increased in the last year and 46% had seen a decrease in trade.
Worrying developments include increases in the cost of finance, such as loans and overdrafts, and extended payment times on invoices. But there are practical ways in which firms can manage their response to the present crisis. For example:
Focus on cash flow – Issue invoices promptly and chase up debtors. Don’t buy more stock than necessary and where possible negotiate longer credit terms with suppliers.
Review sales and marketing plans – You can’t just stop telling people you are in business, but you can look at the return on investment of marketing activity. Try an email campaign instead of direct mail and review how effectively you use your website.
Retain your customers – Apply the ‘80/20 rule’ – work out who your most profitable customers are (the 20%) and focus on looking after them.
Cut back on costs – Look for savings in every part of your business. This could include selling redundant equipment, changing office space or clamping down on everyday expenses. Review existing contracts and get new quotes from suppliers.
Credit check customers – Protect yourself from bad debts by conducting credit checks and agreeing clear payment terms up front with all your customers, not just new ones.
Avoid borrowing at high rates – Bear in mind loans can be more difficult to obtain and more expensive in a slump. If you had plans for expansion, make sure your finance-raising strategy will not leave you further in debt.
If you find yourself in difficulty and need help, ask for advice sooner rather than later to avoid more problems in future.