Managing Your Business Through Economic Uncertainty
Article extract by Rick Gendemann, CPA, CA, Manning Elliot LLP, BC Canada.
Today’s economic environment and the impact of world health concerns continue to send major shock waves around the globe. As a business owner, you are facing new challenges, the likes of which you may have never experienced previously. Successfully managing through economic uncertainty is not only challenging but also critical due to the increasing pace of change.
Navigating through the current crisis requires a heightened focus on four critical areas that need to be addressed by business owners and their management team. However, before we get into that in more depth, businesses first need to ensure their own house is in order.
It is vital for your business to be working from a position of stability and not one of panic.
Maintain Control and Acceptance of the Current Times
During these periods of uncertain times, your employees are looking for strong inspirational leadership from you. To address this challenge, business owners must have emotional control of their own situation. As a business owner, you must not only recognize and acknowledge the difficult business climate you are in, you must also accept it and embrace it.
Acceptance is vital in getting the business past the why’s and time-consuming look-backs to what once was. Acceptance will allow you to move forward with full attention directed towards working on a plan of action. This is not the time to be passive, sitting back, waiting, and accepting whatever the market throws at you.
Be proactive and take control of your situation during these difficult times!
In Steven Covey’s book ‘The Seven Habits of Highly Effective Business’, he defines habit number one, being proactive, as follows: “It means more than merely taking initiative. It means as human beings we are responsible for our own lives. Our behaviour is a function of our decisions, not our conditions.”
Reflect on this statement as a guide to how you should be acting while you are managing through economic uncertainty in such trying times.
Accept that there’s a lot happening in your business environment that you have no control over. Don’t waste your time worrying about them as there is nothing you can do directly to change that.
Instead, focus your attention to those things you can control and the choices you need to make going forward.
To guide your business through to times when calmer waters will prevail, you need to have company-wide alignment and a cohesive effort from everyone in your business. By working through the following four key areas, you will not only position your business to survive, but also create a platform for it to possibly grow and prosper.
Let’s take a closer look at the four key areas you need to address to successfully navigate through these uncertain times:
- Stabilize Your Business
- Revise Your Value Proposition
- Review and Modify Current Operations
- Manage Your Cash Flow
Stabilize the Business
Consider stopping or slowing down any leaks to prevent your business from being overwhelmed by the current business climate. Manage employee costs to match your current and projected sales activity, and reduce or eliminate unnecessary costs.
Work with your suppliers to reduce costs and manage cash flow payments. Don’t underestimate the urgency to address these matters as changes will take time to implement. Focus on the bigger impact items first. The more detailed and time-consuming review of smaller impact issues can wait until later.
Perform a quick ‘due diligence review’ of your key processes and modify them as necessary to minimize risks and to ensure the business is managing its resources wisely. While managing through economic uncertainty, reflect on the phrase ‘Cash is King’. Begin to identify and assemble available sources of cash so you have the necessary funds available for working capital as part of your ‘moving forward’ plans.
Revise Your Value Proposition
How does your business make money? Who are your customers? Why do they buy from your business? Is it because of your location, customer service, lower pricing, more convenience, best overall value, unique business offering, to name a few? Seems like pretty basic concepts, right?
Success for your business generally lies in the execution process by managing these key parameters. However, in my experience, it is surprising how many business owners are complacent and take things for granted based on past performance. Failure to continually address and understand the answers to these questions will make it very difficult for your business to develop effective customer service strategies, the kinds of strategies that not only retain existing customers but also attract new ones.
To remain competitive during these uncertain times your business will likely need to do more, bring greater value, and be more flexible in its sales offerings. Focus on re-evaluating your customer’s needs and modify your value proposition to meet these changing needs.
Review and Modify Current Operations
Managing through economic uncertainty means businesses need to be able to respond and adapt quickly to their changing environment. There will be less time to respond and changes to improve day-to-day operations cannot be hindered through a slow change process.
Do a current review of the four main functional areas of your day-to-day business operations to identify what changes need to be made going forward.
Products and services: You should be looking closely at how the business manages inventory and make whatever adjustments are needed based on current and projected sales activity. If you are in the midst of developing or rolling out any new products or services, be mindful of the costs to launch and market these new offerings. Targeting new customer sales activity is the riskiest and most time consuming of all business development activities. You may not want to deploy valuable needed resources at this time where these sales initiatives are largely untested and reasonable success is unknown.
Marketing and sales: Often when times get tougher, marketing expenses are usually one of the first cost-cutting target areas a business may focus on. You should exercise caution and avoid the simple temptation to slash this expense without a careful review. No doubt some cost reductions will be warranted as they may not be delivering results as expected. However, don’t be afraid to spend some time developing a well-directed, targeted campaign that can be highly effective in getting more customers engaging with your business. Don’t stand pat by making the mistake of trying to manage through tougher times by just cutting costs and then hoping customers will continue to support your business. Finally, be careful about the temptation to cut prices to keep sales activity going. You need to plan for a continuing profitable business and reducing profit margins over the long-term will jeopardize the business unless you have also altered your business model and lowered your operating costs accordingly. Consider opportunities to cost-effectively bundle your products or services to provide an additional benefit to your customers. This strategy may lower your margins slightly, but this could be more than offset by the increased value propositions your customers receive while allowing you to maintain your current pricing structure.
Systems and processes: These infrastructures help ensure your business operates smoothly and efficiently. When faced with times of potential sales pressure, a current review of your customer-facing activities may be very beneficial. Encourage team brainstorming sessions to identify what could be done to enhance overall customer experience with your business to bring greater value. Work with your team to streamline existing internal procedures by updating or changing systems to improve efficiencies. Review your current IT investment costs and seriously consider further investment if it will increase customer service, increase productivity, or reduce costs in the short run and long term.
People Resources: Ask most business owners and they will say their business success revolves around having a good team. During this time of uncertainty, business owners need to recognize the importance of good open communication. You need to keep your team focused on the task at hand and limit exposure to them jumping ship during this period. Communicate regularly with your team so they are aware of how things are going and the plans for the future. Now more than ever, your team needs to be focused on your customers and the critical business success factors you have identified in your “moving forward” plan. If your business needs to address personnel reductions while managing through economic uncertainty be mindful of the impact to your remaining team who will be tasked to do more. In managing labour costs, keep an open mind for possible shorter-term options like:
- Temporary outsourcing or part-time help in lieu of hiring full-timers
- Offering performance bonuses to take away some of the ‘bad news’ sting
- Consider work-sharing arrangements or making across the board salary cuts instead of layoffs or letting people go.
You will likely require these folks when things calm down and you begin planning again for future growth.
Manage Your Cash Flows
During these trying times, management of cash flows will take priority over generating profits until things settle down and the business environment starts to turn around. You need to have a heightened focus on cash management to optimize existing resources. Take every opportunity to ensure you get paid by reviewing and tightening up your existing credit policies. Look at ways to get payment in advance, receive interim progress payments to cover your costs being laid out, and secure final payment terms. Ensure your business invoices, customers, on a timely basis and that you have systems in place to follow up collection. You can’t afford to just sit and wait in hope for the money to come in.
Many businesses often pay for capital expenditures without any financing, but this draws away from available cash flow. Look to finance capital expenditures wherever possible to preserve the cash flow needed for working capital of the business. Look to manage your supplier payments and request payment term extensions where possible without negatively impacting your supplier relationship. Proactively address and review inventory levels to reduce cash tied up in inventory. Review whether to implement spending policies and controls by setting authority levels. Finally, maintain a culture of cost control management and cash flow preservation. Often when businesses face tough economic times, this can be the impetus for improving your company as you move forward.
As you will no doubt appreciate, all of the above measures for managing through economic uncertainty will involve focused attention and a lot of work. Taking the necessary time to develop and work through a plan will not only help your business weather through the current uncertainty, it will also help strengthen and position your business going forward. Turn to your team and your business advisors to help you get you ramped up a lot quicker than you would otherwise do on your own. When the economy is on the rebound and you have a much more disciplined, streamlined and efficient operation, you’ll be glad you made the investment in your business plan.
Rick is one of the Manning Elliott’s lead partners, overseeing and advising on business transition, business advisory, tax planning and family wealth continuity services. Manning Elliott is one of the largest independent firms in British Columbia, Canada. Rick Gendemann email@example.com. Manning Elliot LLP is a member of PrimeGlobal.