This article originally appeared in Smartcompany on October 21, 2008. This is the unedited version.
While Canberra looks after the big end of town, smaller businesses are going to have to fend for themselves. Here’s six tips to harden your business against coming bad times.
Six Tips to toughen your business
It takes an economic crisis to get some really bad analogies going. A great example is Henry Paulson’s claim to Congress last July that he had a bazooka to use against the bad guys.
Now firing bazookas into storms is probably not a good idea. In fact, if the thing was actually loaded Hank might have bought down Ben Bernanke’s helicopter, which might not have been a bad thing for those worried about hyperinflation.
These silly and pointless parallels show how out of touch the US regulators and government have been in the last few years, unfortunately last week’s stimulus package shows things are little different in Australia.
If Canberra’s aim is to maintain employment then the stimulus would have been far better used to encourage investment, for instance increased depreciation allowances on new capital works or a payroll tax holiday.
Even better would have been money, not studies, into training, research, education and infrastructure. All of these are real investments that generate employment and have all been neglected by both Liberal and Labor, state and Federal governments for at least the past 17 boom years.
Instead, it’s business as usual in Canberra with consumption and property speculation being favoured over real, long term investment. From the assistance given to the banks it’s also safe to say that the big end of town will be looked after as well.
The message from Canberra is clear: Small to medium business can go whistle. If anything, we’ll be expected to pay the taxes once the surplus has been squandered.
To pay those taxes, our businesses are going to have to survive the downturn. We need to act early, firm and decisively to ensure this.
My business had a near death experience in the 2001 IT downturn, these are a few lessons I learned from that and the 1990s recession;
Watch your cash flow. It’s become fashionable in recent years to say “I don’t need a business plan”. That’s sometimes true when times are good but never when times are bad. Watch that cash flow spreadsheet closely.
Get your costs down. Eliminate anything unnecessary and look closely at how you can reduce your outgoings such as rent, vehicles, phones, computers, power and travel.
Don’t tolerate bad debtors. Tighten your payment terms and stick to them.
Eliminate the trouble areas. A small group of products, customers, suppliers and employees are responsible for 80% of your problems. Indentify them and get them out of your life.
Reduce inventory and product lines. Get rid of it anything that isn’t performing. The fact Coles are experimenting with this at the moment shows how important this is.
Reduce your debt. A lot of businesses have been kept afloat by debt and many smaller ones have relied on the proprietor drawing down on their home equity. Those businesses are about to go bust: Don’t be one of them.
There’s hard work ahead for all us and last week has shown our governments are going to be, at best, useless. You need to act decisively to guarantee the future of your business.
It’s also a good idea to steer clear of ministers and Reserve Bank governors wielding bazookas.