Eight tips for managing your business in tough times

During a crisis, finding the time to stop and think can be the first solid decision you make. Fight the impulse to rush in and fix things, as this may cost you further down the line. Here are eight thoughts on how to manage your business during a crisis and get back to growth.

Running a business during tough economic times can either bring out the best in a business or highlight fundamental weaknesses in it. It’s during a major crisis that business owners get to find out what it is they are in control over and where they should perhaps exercise more control. Also, for those with more of a ‘carpe diem’ attitude, it can be a time to exploit the weaknesses in your competitors or previously unconsidered gaps in the market.

During times of crisis, what should business owners be considering? We have put together eight thoughts to help guide the way.

1. Time to reflect on the big picture

A business can come under threat for numerous reasons, perhaps because of client loss, competitor activity, a disruptive market force, or a severe economic problem within its industry or the country as a whole. It’s easy for management or the owner to recoil and look at the situation within, rather than ‘without’. Often, this means that business owners focus too much on the most apparent problems. This may make excellent business sense, but may not take into full account of the external situation. As a result, this could lead to the changes made becoming obsolete quite quickly.

Yes, look at the internal problems that need resolving. But, also take a step back and look at the business and the environment more fully. Are there more changes or potential unknowns on the horizon that may threaten the short-term; challenges that may not seem so evident at present? Perhaps the most important thing to do is to look at how the crisis is affecting your customers and suppliers. Also, look at your money supply. If you have loans or other external funding, how are the providers going to react in a market downturn? Is your cash supply secure?

The temptation in a crisis is to act tactically and quickly. But this should be tempered with a thoughtful, strategic view of what is happening on a grander scale. This should stop you from making quick tactical plays that may prove damaging or even fatal later.

As the saying goes: “Take a step back, the ocean is wider, and the sky is higher”.

2. Doing nothing is making a decision

Probably the worst decision to make is the decision to do nothing. If your business is in crisis, it can be too much for some, and denial sets in. This only ever ends badly.

As a business owner in crisis, now’s the time to stand up and take responsibility for the company. Basically – lead! Worst case – you may ultimately be looking at dissolving or liquidating the company, but making that decision before somebody does it for you, is a positive step, as it keeps you in charge. Best case, taking an initiate early to try and fix a problem could lead you to a better solution, or to those willing to help you because you have shown the desire to take action responsibly.

3. Staff by function and priority

Cutting costs is the quickest and easiest (physically) action to take and one almost always necessary in a crisis. But what costs to cut?

The two biggest expenditures a company has are likely its office/equipment costs and its payroll. In times of crisis, companies often look to cut headcount.  If the problem the company faces is a loss of business, perhaps due to non-competitiveness, aging products, or lack of demand, cutting heads may be prudent. However, in times of crisis, although headcount cost cuts may be essential, it pays to look carefully at what is needed to help the company recover. Again, this is big picture thinking. 

Some ‘specialist’ staff may not be utilised as fully as they might be during the crisis but, if the company is to recover, it may be that these staff will also be the hardest to recruit. It pays to fully consider such cuts and the priority the business has through its various product lines of business channels. In other words, don’t just make cuts for the sake of cutting costs.

4. Maintaining cash flow

During a crisis, cash is not just king, but more the empire. Access to cash is critical. All companies should have contingency plans where cash is concerned.

Profitable businesses may have the relative luxury of maintaining a healthy cash balance, typically 4 to 6 months of operating capital. If your business isn’t so fortunate, then taking advantage of any government lifelines will be critical. Failing that, overdraft facilities, or other loans from the financial institutions and private loan companies may be possible. If business owners can’t raise the necessary cash from the banks, then the last resort is to consider offering shares to private investors. 

All loans will need to be paid back, even if they are offered at very low-interest rates. Indebtedness is how many companies fail, and business owners need to thoroughly think through the real cost of the loan. 

Another fundamental question to ask, is whether the business actually worth saving? Is it time to realise the truth and move on? What’s the opportunity cost of continuing? I.e. What other, more profitable initiatives or opportunities could you better spend your energies on?

5. The devil is in the detail

The ability to take decisive action in a crisis is contingent upon having the necessary data to hand. During military battles, battle commanders are driven by two things – intelligence and observations, and the data they reveal. Similarly, in business, you need to know what’s happening on your battlefield.

Use your intelligence gathering resources to acquire data, not just on your market and competitor’s actions during the crisis, but also on how your own business is being impacted. This might be related to footfall, unit sales, website visits, etc.

Regarding the details of your own business, it’s time to dig into the day-to-day operations and look at the financials in more detail. For instance, how are your forecasts matching current reality, what will the impact be in ‘x months’ time if specific clients or lines of business face issues? Are you factoring in cost changes and changes in revenue or cost reductions to entice new customers?

The other standout factor to consider when reviewing the scenarios your business is facing is that of payments. Payments in the form of aging receivables will dramatically impact cash flow, very quickly if you don’t maintain a good cash reserve. Also, without cash from customers, your business may not be able to buy the raw materials it needs. This is a recipe for disaster as the situation can quickly spiral out of control, particularly if on the other side of the coin, the suppliers are not being paid.

Having your finger on the financial pulse of the company, sometimes minute by minute can be the difference between the life or death of a company. The detail can be overwhelming and present a headache to a company’s operations, as it may take the business’s finance department some time to gather, collate, analyse and report back on issues within the business. This may not be fast or streamlined enough to make a difference.

This is one reason why we at Berley are advocates for cloud-based accounting, software applications like Xero, for instance. This not only simplifies and streamlines the accounting function but also provides highly valuable management information data that a business can use to make strategic as well as tactical decisions supported by the intelligence it is getting from its operations. Better still, the data is accessible wherever you are and at any time, unlike your accountant.

6. Stay true to your brand

It’s easy during a panic and with the urge to cut costs, to fundamentally undermine the principles the company’s brand was built on. This is especially true where quality is concerned. Cost-cutting can degrade quality; not just product quality, but customer service quality too.

Stay true to your brand, and your clients will remember that. If you don’t and your cost-cutting undermines aspects of your brand value, when you do recover, you may have fewer clients and a tarnished reputation to recover from. 

It’s a tough call. For some business, this decision may be life or death, and consequentially the decision to essentially do whatever it takes to ‘live to fight another day’ is for the company’s owners to make.  

7. Managing expectations

As a small business owner, you have a lot of emotional capital built up in the brand. This can be sorely tested during times of crisis. The heart can easily overrule the brain.

Take time to step back and discuss with a trusted adviser or with friends. You simply may not be able to realise many of the expectations you had prior to any crisis you may be facing. Rather than doggedly driving after a goal that may simply not be attainable at this point, it may be time to shift tracks for a while and pursue some shorter-term, more reasonable goals. Reconcile this within your thinking as not so much giving up, but making a smarter decision so as not to jeopardise your original goals and expectations.

8. Finally – embrace change, don’t fight it

The one constant in life is change. In today’s business world with advances in technology and evolving consumer trends and expectations, companies simply must reinvent themselves or at least aspects of themselves, or face becoming irrelevant.

Change in today’s business world is rather like water, a force of nature to be worked with, not against. Maybe now is the right time to re-examine your whole business model too!

Here are two quotes to inspire you to think differently, and that embrace this idea are:

In the words of Bruce Lee (actually his character in Longstreet): “I said empty your mind … be formless … shapeless like water … now you put water into a cup, it becomes the cup … you put water into a bottle, it becomes the bottle … put it in a teapot, it becomes the teapot … water can flow … water can crash … be water, my friend.” 

And, in the words of Sun Tzu: Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing.

So, businesses today definitely need to embrace change, be adaptable and . . . “be like water”. 

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.