PrintEmail

It’s all over the news that business and consumer confidence is low and that New Zealand and other western economies are heading for tough times. Money is tight and many business sales are falling. This is not good news for many small to medium enterprises, but it can present a chance to take stock and even get the ‘edge’ over competitors who don’t treat the situation as an opportunity.

Business owners need to show leadership and retain the confidence of staff and other stakeholders. Staff morale can be extremely sensitive in tough times, so it’s important to focus on managing the business as well as possible and be honest with

staff.

In my experience good staff members can be your best ally in troubled times, if you trust them and get their help in decision making. SMEs often have an advantage over larger businesses, in that they are able to act more quickly and decisively. Larger businesses often have office politics and various departments trying to protect their own ‘turf’, whereas SMEs are more ‘down to earth’.

Having said this though, it can be detrimental to employ ‘slash and burn’ tactics to survive a downturn. By ‘slash and burn’ tactics I mean indiscriminately cutting costs without really thinking about it strategically and how this might impact on the future of the business.

The best place to begin preparing for a downturn is to work towards where you want to be when things pick up again. Ask yourself these questions

• How do you want to be running your business? E.g. in the traditional way you have in the past, or in some other way, perhaps taking advantage of technology or the changing market.
• Is it the right ‘business model’ i.e. are there better ways to structure the business?
• What type of customers do you want to work with?
• How will you market your product or service?
• How will you sell your product or service?
• What resources will you need to deliver products and services and how will you deliver them? Resources include human as well as equipment.
• Where will you operate your business from?
• What price and cost structure will exist?
• How will your business be funded? Will external funding be required or will it be self-funding?

Once you have a picture of your ideal business you can begin to look at the cost of running such a business. A great place to start is with a serious review of your Profit and Loss Statement for a prior period e.g. for the year ended 30th June 2008.

When times are good most business owners spend little time worrying about every cent that gets spent. When sales start to fall though, this is the very best place to start.

Begin by looking at direct costs e.g. cost of products for sale and labour costs. Are there alternatives or better methods of delivering your product or service? How are other businesses doing it? Perhaps do some research on the Internet to see how overseas businesses are doing things?

How we saved $250,000 per annum
Next, work your way through every line item on the Profit and Loss Statement. Some time put aside to focus on this issue, can be some of the most profitable time you will spend in your business.