MAKE SURE YOUR BUSINESS SURVIVES THE RECESSION (WHICH IS NOT OVER!)
Sunday, November 8th, 2009I read in Business Day a few weeks back that we’re supposed to be coming out of the recession. The manufacturing sector, we’re told, is back on track. Well, I’ll reserve judgement for now, because I’m not seeing any fireworks out there at present. Still, if you’re not ‘back on track’ perhaps you need to consider this: In my last newsletter, I attempted to highlight the fact (as I believe it is a fact), that far from seeing an end to the recent recession, we may well be brewing up even more difficult times for business in the next few years.
My reasons for saying this are two-fold: firstly, we mustn’t overlook the impact on our economy of all the infrastructural development necessary to cater for the 2010 world cup, and all the ancillary business which sprang up as a result. Its been a bit of a feeding frenzy in some circles and like all good feasts, they do come to an end!
Secondly, it appears that our fairly restrictive labour laws tend to impair the effects of globalisation on our employment situation; employment lags behind the economy, so that the effects of a recession on employment are felt long after the effects on the economy. I think that has caused many to make bold statements like: South Africa has not been affected by the global recession to the extent the rest of the world has, – which are proving to be anything but true.
The question we should be asking ourselves is this: what happens to all the people involved in the building of stadiums, roads, drainage, hotel buildings etc., when the building is over; and when there are no longer any tourists around to occupy these white elephants?
Do we think our economy is going to be able to simply swallow them up in ready-made jobs? I suspect that the general unrest prevalent in the country right now, due in the main to poor delivery by government, may well escalate beyond government’s ability to deal with it, rationally. Politically, our government has to find a scape-goat that won’t damage their own tenure, and white-owned business (sadly) is the obvious target. Recent mouthings by the ANCYL’s Malema confirm this. Even now, business (and in particular white-owned business) is being accused of enriching itself at the expense of the poor masses. We’ve seen and heard this before, but it’s no less distressing!
So – we, as the many small-to-medium sized businesses in South Africa, – and which I might add employ more people than all the rest – are going to have to be prepared for what lies ahead. In the words of a noted Chinese tactician: “If you want peace, prepare for war!”
You may be a one-person business, or you may be a local merchant with 450 employees or more; whichever, however or whatever, you’ve got to know how to keep your business alive during economic recessions.
I would venture to suggest you take time out to plan and implement some of the following strategies:
- AVOID IMPULSE BUYING
Some of the things you can do and should do, include protecting yourself from expenditures made on sudden impulse. We’ve all bought things or services we really didn’t need, simply because we were in the mood, or perhaps due to the flamboyancy of the advertising, or even because of the persuasiveness of the sales person. Then we sort of “wake up” a couple of days later and find that we’ve committed business funds for an item or service that’s not really essential to the success of our own business.
If you’re incorporated, you can eliminate these “impulse purchases” by including within your company policy, a clause that states: “all purchasing decisions over a certain amount are contingent upon approval by the board of directors”, and then make yourself accountable to your bookkeeper/accountant. This will give you a chance to consider any “impulse purchases” a second time after you’ve had a chance to think about the need for your purchase.
If your business is a partnership, you can tell whoever it is that attempts to sell you something, that all purchase decisions are contingent upon the approval of a third party. In reality, the third party can be your partner, one of your department heads or even one of your suppliers.
If your business is a sole proprietorship, you don’t have much to really worry about. Think about your proposed purchase. If you really don’t need it or can’t afford it, don’t buy it!
- DON’T “SHORT-CHANGE” YOURSELF ON PROFESSIONAL COUNSEL!
Especially in times of emergency, be sure that you don’t “short-change” yourself on professional services.
Anytime you commit yourself and move full-speed ahead without fully investigating all the angles, and preparing yourself for all the contingencies that may arise, you’re skating on thin ice. Regardless of the costs involved, it always pays off in the long run to seek out the advice of experienced professionals before embarking on a plan that could ruin you. Its not just about whether a venture will fly – but whether its been structured properly to cater for the myriad, tax, and other regulations that can come back and bite you later on. The Book of Proverbs has this to say:
“Plans fail without good advice, but they succeed with the advice of many others.” (Proverbs 15:22)
- CONCENTRATE ON YOUR BASIC NEEDS
Particularly when sales are down, you must be “hard-nosed” with people trying to sell you luxuries for your business. When your business is booming, you undoubtedly spend more time allowing different sales people to show you new models of equipment or a new line of better-looking supplies, but when your business is down, skip the entertaining frills and concentrate on the basics. Great care, however, must be taken to maintain courtesy and allow these sellers to consider you a “friend,” and call back at another time.
- FINE-TUNE YOUR FINANCIAL RECORDS TO CREATE INSTANT WARNING SIGNALS.
Whoever maintains your company’s books should reflect your way of thinking, and generate information according to your policies. If you don’t have someone ‘in-house’ who can do it for you, you should hire an outside accountant or accounting firm to calculate your return on your investment, as well as the turnover on your accounts receivable and your inventory. Such an audit or survey should focus in depth on any or every item within your financial statement that merits special attention. In this way, you’ll probably uncover any potential financial problems before they arise.
- SET UP A PERSONAL “POWER CIRCLE”.
Many small companies set up advisory boards of outside professional people. These are sometimes known as Power Circles, and once in place, the business always benefits, especially in times of short operating capital. Such an advisory board or power circle should include an attorney, an accountant, civic club leaders, owner/managers or businesses similar to yours, and retired executives – men and women with proven track records in difficult times. Setting up such an advisory board of directors is really quite easy because most people you ask will be honoured to serve. Even if there is a cost involved, it will add enormous value to the business.
Once your board is set up, you should meet about once a month and present material for review. Each meeting should be a discussion of your business problems and potential, and an input from your advisors relative to possible solutions.
These members of your board of advisors should offer you advice as well as alternatives, and provide you with objectivity. Also – don’t be hesitant in sound-boarding them by email if there’s a need. No formal decisions need to be made either at your board meetings or as a result of them, but you should be able to gain a great deal from the suggestions you hear.
An innovative, economic, and we believe exciting alternative, is to use our new internet-based financial service which has been designed for just this purpose. Check this, and a number of other options out, on our web site at www.finserv.co.za
- GROW YOUR CUSTOMER RELATIONSHIPS AND KEEP ON TOP OF YOUR ACCOUNTS RECEIVABLE.
When the chips are down; when the rubber hits the road; when the takkie hits the tar – whatever you want to call it – you need to know that your customers are not only loyal to you, but are going to stay in business along with you. Put together a strategic plan which will involve regular visits – especially to your key clients. Get to know their employees, their systems, their strengths and weaknesses – and don’t be afraid to offer assistance where you feel you can do so. Make them feel they’re part of your family – because when times get tough, blood is thicker than water!
But don’t allow them to abuse you with late payments. It should be that most of your customers have the money to pay at least some of the money they owe you, immediately. To keep them current and the number of accounts receivable in your files to a minimum, you should step up the number of times you call them. Call on them if necessary, and while you’re there keep your eyes peeled for signs of a business in distress, and your ears peeled for gossip which can alert you to problems. Remember, the ‘squeakiest wheel gets the oil.’
If you develop such a habit as a standard part of your operating procedure, you’ll find your invoices will magically be drawn to the front of their piles of bills to pay. Do not be hesitant nor too much of a “nice guy” when it comes to collecting money.
- KEEP YOUR BANK MANAGER HAPPY!
Something else that’s a very good business practice, but which few business owners do is to methodically build a good credit rating with their local banks. Most business owners I know keep away from their banks until they desperately need them; and then it’s usually too late.
Particularly when you have a good cash flow, you should borrow small amounts from your banks every 90-days or so. Simply borrow the money – place it in an interest-bearing account – and then pay it all back at least a month or so before it’s due. By doing this, even though it will cost you a bit, you’ll increase the borrowing power of your signature, and strengthen your ability to obtain needed financing on short notice. This is the kind of business leverage that will be of great value to you if or whenever your cash position becomes desperate.
- KEEP UP TO DATE ON YOUR INDUSTRY.
By all means, you should join your industry’s local and national trade associations. If your industry doesn’t have an association, consider starting one yourself. Sharing information and statistics can be very helpful. Most of these organizations have a wealth of information available – everything from details on your competitors, to average industry sales figures, to new products, services and trends.
If they give you a membership certificate or wall plaque, you should display these conspicuously on your office wall. You customers like to see such “seals of approval” and place additional confidence in your business when they see them.
- GET YOUR SPOUSE INVOLVED IN YOUR BUSINESS.
Still another thing often overlooked – if at all possible, you should have your spouse work in the business with you at least 3 to 4 weeks per year. (Especially if your business is sole proprietorship.) The important thing is that if, for any reason, you are not available to run the business, your spouse will be familiar with certain people and situations about your business. These people should include your attorney, accountant, any consultants or advisors, your major suppliers and creditors. The long-term advantages of having your spouse work four weeks per year in your business with you greatly outweigh the short-term inconvenience.
Your spouse also knows you better than anyone else, your strengths and weaknesses, and will be more likely to provide you with sound constructive and objective criticism than most employees.
- TAP INTO AS MUCH FREE BUSINESS COUNSELING AS YOU CAN.
Whenever you can, and as often as you need it, you should take advantage of whatever free business counselling is available.
There are a number of Small Business Advisory services available who have many excellent booklets, checklists and brochures available on quite a large variety of businesses. Many of these have their own web sites which are full of useful information, and links to other sites.
They also have management and financial assistance programs that can definitely benefit just about any small business. Most local universities and many private organizations hold seminars at very minimal costs, often without charge. You should also take advantage of free services offered by your bank and local library.
- KEEP TECHNICALLY UP-TO-DATE
You may feel no great need for continuing education courses, but if you learn even one new bit of information that will be of ultimate benefit to you or your business (or even your customers), the little time spent at a seminar or in a night course, will be a wise investment.
This is particularly important for business owners who themselves are technicians. Quite often, technicians don’t see the need to ‘brush-up’ on their expertise, believing that they are more than competent to do the job. While that may be the case, it doesn’t mean they’ve kept up to date on technology and new developments. Keep yourself open to learning new things and ways!
- KEEP YOUR FINANCIAL RECORDS UP-TO-DATE AND ACCURATE.
The important thing about running a small business is to know the direction in which you’re heading – to know on a day-to-day basis, your progress in that direction – to be aware of what your competitors are doing – industry trends and sales figures for businesses comparable to the size of yours – to practice good money management at all times – and to prepare yourself to solve your problems before they arise.
It is absolutely essential that you practice sound financial management and this means having an accounting system that provides you with key performance indicators as soon as possible after an accounting period ( after month end.), and someone who can interpret these reports to enable you to make informed decisions timeously. Another important reason for this is that if you suddenly find yourself in a financial bind, and you need to get the help of your bank, having current, up-to-date financial management information will be of inestimable help to you. Bankers are more relaxed about lending to companies that are seen to be on top of their financial records.
- SEPARATE YOUR PERSONAL FINANCIAL AFFAIRS FROM THAT OF YOUR BUSINESS!
You need to know exactly how well your business is doing, and mixing personal expenses with that of your business is misleading. Don’t use your business bank account for personal expenses. Rather budget a specific amount for personal drawings each month, and then live within these confines until the business is doing well. Become an employee of your business – pay yourself a market-related salary, and then rely on dividends to reward yourself. And then, carry on in this way!!
Many business owners I know have a habit of rewarding themselves in advance. They do this by paying themselves huge salaries (beyond what the business can afford), and dividends from profits that haven’t been earned yet. Be patient, and be frugal – your time will come, and quite often when everyone else is struggling!
- EMPLOY THE BEST PEOPLE YOU CAN FOR THE JOB.
When times get tough, the best people are going to be your insurance against a recession, so don’t let the cost of employing the best people put you off. They will soon add sufficient value to your business to more than cover the additional cost. Not only will they add value, but they will enable you to grow as a leader too!
Employing mediocre people because you think that’s all you can afford is a recipe for disaster. You will have invested a disproportionate amount of your time training them, only to find they’re not sufficiently trainable anyway.
- INVEST QUALITY TIME IN YOUR STAFF
Even in difficult times, – when all you want to do is keep your head down and work, – you need to make time to invest in growing your employees, in their job skills and in their commitment to your business. Develop the loyalty factor in your business – surprisingly, money is not always the motivating factor. A dissatisfied and direction-less workforce can be the death-knell of your business.
Generally speaking, times are always tough for small businesses. In order to survive with a small business, regardless of the economic times, it is essential that you surround yourself with smart people, and practice sound business management at all times. Be sure that if you are doing well now, you will continue to be successful in the future.
