8 Tips to Recession Proof your Business from Tax Accountants and Bookkeepers |
1. Remember the 80:20 rule.
The 80/20 rule applies to almost anything.
It will certainly apply to your customers whereby 80% of your results will come from 20% of your customers. So analyse your customer base to work out what percentage of your customers contribute 80% of your gross profit.
Give your best to the best …. The best payer…..the most profitable…..the most enjoyable.
You will also find that a percentage of customers (probably around 20%) are actually unprofitable as well. They also tend to be the clients that cause the most headaches.
Once you know this, the next step is to focus all your attention on your top 20%. Make sure you are communicating and building relationship with them.
On the other hand, get rid of the low profit contributors and you will see your profitability and your staff moral will immediately improve.
2. Use the 80:20 Principle on your Products and Services.
The 80/20 rule should also apply to your products and services if you have a larger range. Identify the percentage of products and services that account for 80% of your profit, and the percentage that are actually unprofitable for you.
Remember in bad times, focus all your attention on the profitable ones and cull those that are unprofitable.
Focus on your core business. Don't be distracted into putting time and resources into non-core activities. The expression is concentrate on your knitting.
3. Spread your risk of Danger.
And remember the worst number in business is the number 1! Many businesses have been wiped out because of problems with their 1 major customer or 1 major supplier. Look at the car component industry.
The last thing you want is for your business to go under because of too much reliance on 1 customer or 1 supplier who fails or the relationship changes for some reason.
4. Follow-up your debtors professionally
When times are good many small business owners become complacent. They don't follow up customers who owe them money like they should, and have too much owed to them and extend terms unnecessarily.
As finance becomes tighter, those that are disciplined on following up customers will have the edge as money becomes critical. Start now or ask us to help.
As it is no use shutting the gate when the horse has bolted.
5. Have a garage sale
Clear the clutter.
Review your inventory and have a sale to clear out slow moving items and
Sell other unused (or under-utilised) assets and use the money to reduce debt. There is nothing wrong with a business having a garage sale.
6. Build relationship with Bankers
Work with your Bankers as much as possible. You want the best possible interest cost but you also want an ongoing good relationship for now and the future. If they know you and your business they will be more understanding when times are tough.
7. Are you living off the credit card?
It is important to make sure your debt is structured correctly with short term debt (e.g. credit cards, overdraft etc) only being used for short term requirements.
If you currently use short term debt for long term assets, have it restructured as when finance becomes tight, Bankers are less likely to extend overdrafts and it is normally more expensive.
Consider the use of leasing or hire purchase finance which helps by matching the revenue resulting from the asset with the assets purchase cost.
And finally,
8. Keep your bookkeeping up to date
Cash flow is king. Keep your books up to date so you know what is happening to your cash flow. And if you're in doubt get a good bookkeeper and accountant working together to help you adjust your business to the economies ebbs and flows.
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Tips to Recession Proof your Business. To survive in recession 2008-2009: focus attention on the profitable services, spread your risk of danger, follow-up your debtors professionally, build relationship with bankers. Those and other actions will help your business survive in recession 2008-2009.