Thriving in difficult times

How can businesses protect themselves in case the market turns against them? What’s the key to surviving – and thriving – in difficult times?

There’s an old saying that goes the only thing we have to fear is fear itself. Well, it seems there are plenty of things for small businesses to be worried about at the moment which is why some of them are preparing for the worst.

A recent survey suggested small business owners are concerned about the state of the economy. Around 33 percent said they are very concerned about the way the economy will hit their business prospects. Business owners also said they were worried about cash flow problems and having adequate finances in place.

A tricky environment

A look at the global economic outlook suggests there is reason to be worried. Troubles in China, stagnating growth, volatile oil prices and fears of recession all create a climate of uncertainty. Morgan Stanley recently warned that the likelihood of global recession could be up to 30 percent.

If tough times are on the horizon, what can businesses do to protect themselves?

Be prepared

The first thing is to ensure your business is in the best shape possible.

A good place to start is by performing a robust financial health check on your business. You can check your financial statements and make sure cash flow forecasts are up to scratch. Make sure you know the current financial position of the company, what you’re likely to be spending and how much you expect to receive. You can also look at the value of current and future sales as well as how much money you’re owed.

As Paul Drum, Head of Policy at CPA Australia, explains, the more you can see the better placed you will be.

“Having visibility to how your business is performing is essential,” says Mr Drum. “There are a number of key indicators that will quickly tell you how your business is tracking. They could be as simple as the value of daily sales, or the cash balance or the debtors’ balance, or the value of next week’s orders. Create a way to follow these indicators, such as a graph, and update it daily, or at least weekly.”

Adapt and survive

Life can be confusing for entrepreneurs when they hit a rough patch. All of a sudden a profitable business starts to flounder. Successful policies don’t work so well. It’s easy to panic and start doing the same thing over and over again in the hope that it will suddenly click into place. As Drum outlines, that might not be the best plan.

“Don’t just do what you’ve always done,” he explains. “Work on the parts of the business you can influence. Learn from others and be prepared to be flexible. Prepare financial statements and benchmark the information that emerges from them against industry averages. Get a professional – like a CPA – to take a look at your business.”

New market realities may demand a new business strategy. If your forecasts and approach were based on a more favourable market reality you could be heading into difficulties.

Focus on cash flow

Cash is the lifeblood of any business and when it stops flowing you could find yourself in trouble. Many successful businesses find themselves in trouble because they run out of money. They may have a full order book but because there is a gap between the amount they’re owed and how much is coming in, they run onto the rocks.

Prepare regular cash flow forecasts and review them regularly because in volatile times the position can change often. Work out how much you’re owed and get proactive about collecting in debts. This can start with your sales team. Make sure invoices get to the right people and there’s a clear outline of when these have to be paid.

You may also be able to negotiate more favourable terms with your own suppliers. As long as you’re open they may be willing to negotiate payment deals which help you smooth your own cash flow. It’s in their interests that you survive and continue being a customer, so as long as they have faith that the money is coming in they may be flexible.

It’s not all doom and gloom

Many of the problems affecting the global economy may not impact on small businesses at a local level. As Drum confirms, although tough times do lie ahead many small businesses are surprisingly confident.

“[This year] is shaping up as a relatively tough year for many small businesses, but it is very dependent on the sector the business operates in,” he says. “CPA Australia’s most recent small business survey showed a jump in optimism with more Australian small businesses forecasting they will grow in 2016 (57 percent) than reported growing in 2015 (46 percent).”

Don’t let the negative headlines get you down. Look at the market and how it relates specifically to your business. Be prepared for your specific circumstances and avoid making decisions based on fear.