MICHAEL PHILLIPS has a recurring nightmare that he’s caught in a vice, one side is the supplier and the other a customer. Here are 5 tips to nightmare-proof your business.
I have a recurring nightmare that I’m caught in a vice. Each side of the vice continues to squeeze everything out of me, slowly but surely, until I wake up right before the vice cannot push any further. My theory is that this is a metaphor for small business where there are two categories of people on each side slowly squeezing a business until they have squeezed the life out of it.
In this theory, one side is the supplier and the other a customer, and the “life” part of the equation is margin. Without margin the business will die a painful death. Now, while I didn’t say this was going to be a happy theory, the solution is not to focus on being squeezed, but on how to maximise the life portion – margin.
This is no more prudent than in the current climate, with significant pressures on one side as wages, input and overhead costs are rising, while on the other side customers are looking to get the best deal available and competition is ferocious.
So, this brings us back to business basics; manage your margins and cash flow and you will ensure you see out the current pressures. The ominous side of the current economic climate is that it appears we are at the tip of an iceberg. We might be able to sail right by that tip, or we might find that under the surface it is going to cause far more damage than expected.
But before we all pack up the women and children, put them on the life rafts and valiantly go down with our ships, the key is to prepare for any potential effects.
We can do this by developing and implementing a “financial disaster recovery plan”, which in essence is based on the most simplest of financial phenomenas; the family budget. Think of your business as you would think of your family budget, and for a lot of SMEs, this may be one in the same.
The five things to fireproof the business (or family budget) are:
- Pay down debt – with rising debt costs and general instability, this is not the time to be running significant loans, be that credit cards, personal or business finance.
- Analyse all costs – first determine any costs you can cut immediately and wipe them from your business. Unfortunately this does mean the biggest cost of them all; wages! It may not be the happiest of times, but remember, think of the majority not the minority. Second, of the costs that remain, it’s time to revisit them all and look for new ways to cut them – either through negotiation or changing supplier.
- Look for efficiencies within the business – this is closely linked with minimising costs, but you will find that if you analyse processes and look for efficiency gains, it is possible to cut costs at the same time.
- Drive the culture – get your staff focused on running a financially literate business. As they say, “manage the cents and the dollars will take care of themselves”. You don’t have to make saving money a boring task; get your staff behind it. Reward financial prudence!
- Manage your cash flow – got some debtors that are creeping out on you? Well, now is not the time to be managing a large debtor balance. Deliver your product or service and make sure you get paid as delinquencies are on the rise. Bad debts kill businesses!
It’s on this relatively dark note I leave you this week, but don’t be disheartened – the current climate and any future shocks are all part of the economic cycle. The fact is, financially strong businesses survive through the ups and downs, whereas fly by night wannabe’s will die a quick death.
Rest in Peace ABC Learning, Allco, Centro and MFS as we knew them – maybe a “financial disaster recovery plan” could have helped them.
Michael Phillips is a 29-year old CPA managing a business full of Gen-Ys. He’s the Commercial Manager of Cremorne Group which wholesales and retail mens and womens apparel, including the Tommy Hilfiger, Blazer and Perri Cutten brands. He offers his experience as a pioneering Gen-Y managing Gen-Ys, covering issues such as how to recruit, retain and get the most out of Gen-Y – the notoriously difficult younger generation of employees aged 15 to 30.
For more Managing Gen-Y blogs, click here.
Paul Steele writes: It is well to understand the average Gen-Y is a hedonist. It is not that they are inherently lazy, it is simply they are consumed with their own (immediate) gratification. They don’t think of themselves as lazy or selfish and are upset if so accused, but they want the most reward for minimal effort, and preferably now.