Act to keep your venture afloat

For thousands of entrepreneurs every year there seems to be no way out. Mounting financial and emotional pressures prove insurmountable and they end up closing the business or being forced to go into administration.

The current economic downturn makes this doomsday scenario more likely.

Even major names, such as high street retailer Woolworths and furniture giant MFI, have collapsed during the past few

turbulent months.

But it doesn’t necessarily have to be this way, insists Stephen Alambritis, spokesman for the Federation of Small Businesses.

With a bit of careful planning and by taking swift action, the vast majority of problems can be solved.

“The next six months are going to be very difficult, so business owners need to readjust to the times,” he says.

“The golden rules for survival are to pay important bills on time, control  the cashflow and continually search for fresh opportunities.”

Planning ahead

Every business — whether it is a multi-million-pound global empire or an eBay venture run from a back bedroom — needs to formulate a disaster/recovery plan, according to Andrew Burn, a director of restructuring at accountancy

firm KPMG.

“These plans used to focus on what would happen if the firm’s building burned down,” he says. “Now they are more likely to cover potential financial problems such as one of your key suppliers suddenly going out of business.”

He suggests trickling work the way of  a number of separate companies so there are options available should the main supplier disappear.

“This means such  an event won’t have a major impact on the business,” he explains.

Focusing on cashflow

In any business you should remember that cash is key, insists Norman Whyte, chief executive of the York Business Advice Centre.

“Invoice on time, chase up debtors and don’t buy more stock than you need,” he says.

“You need to credit-check new customers, agree terms with them and then enforce them rigorously.”

For example, if you normally give 30 days for clients to pay, don’t wait  70 days before chasing the debt.

It is a juggling act, but to survive the current climate you need to keep on top of everything.

A good way of taking the pulse of your business is implementing 13-week cashflow checks, suggests Burn at KPMG.

This means looking at the money coming in and going out over the next quarter.

“They give you visibility in terms of how the business is performing and help identify any looming problems. If you find anything untoward, there is a chance your business may be becoming stressed.”

Trimming your costs

Most businesses will waste money on something, whether it is over-ordering on notepads or keeping the lights and heating on 24 hours a day — even when the office has closed for the weekend.

“Look for savings in every part of your business and streamline your operation,” advises Norman Whyte.

“Consider moving to smaller premises, or sub-letting some of your space if you are permitted. You may even want to see if flexible working for your staff will be more cost-efficient.”

Looking for fresh opportunities

You will always have boom-and bust scenarios, so it is all about making the necessary adjustments to your business to take the trickier economic environment into account, says Alambritis at the Federation of Small Businesses.

 “This may involve rethinking your unique selling points and seeing if there are any new customers you can pick up,” he says.

“No one wants a recession but it does give businesses a chance to refocus.”

For example, if you have a retail outlet it may be worth opening an online shop as well because an effective Web presence could put you before a truly global potential customer base — at very little cost to the business.

Don’t forget about your employees

It may sound simplistic but remember to ask your employees how they are coping when times are tough, suggests Nick Tasler, author of The Impulse Factor — Why some of us play It safe and others risk It all.

Leaders need to be strong but they must also show empathy for others.

“It is amazing how easy it is for small-business owners to forget about this and it is likely that fear and anxiety are

infiltrating their workplace,” he says.

“They don’t have to do much beyond letting their employees talk and show they have at least some concern for the personal struggles they are facing right now.”

Of course, taking this approach will also have positive benefits for the business.

“By creating distance between themselves and their employees they will only exacerbate the negative emotions,”  adds Tasler.

“This will lower the productivity of the workers they rely on.”

Keep everyone in the loop

Business owners who find themselves under pressure should keep in regular contact with their banks and major suppliers, according to alambritis.

“The most important factors are to ensure they pay their VaT and tax bills, as well as keeping their overdraft at the correct level,” he says.

“Banks and the taxman have the power to close businesses, so people need to be very careful.”

Most businesses appreciate that everyone is having difficulties and they will be willing to reach a middle ground on terms as long as you speak with them.

Concentrate on the positives

It is very easy to get worn down by doom and gloom but an economic slump actually provides plenty of opportunities

for those with the foresight to plan ahead, suggests Burn at KpMG.

Sharper, leaner and more focused businesses will be in a far better position to grow and develop than stodgy, flabby

firms which continue to haemorrhage cash and have spent years battling to keep one step ahead of the bailiffs.

“Business owners have a fantastic chance to remodel their businesses and this will help them maximise 

any opportunities that come their way,” he says.

“When we come out of the recession these businesses will be in a far stronger position.”