As part of the service that RHK provide to clients, we like to have regular meetings with our clients to discuss both their future plans and concerns. It was not too long after the credit crunch first became the number one topic that we noticed a significant change in the questions we were being asked. Clients are now looking for our guidance to help them through a potentially difficult time explains David Hall, ManagingPartner of RHK Chartered Accountants and Business Advisers based in Gateshead.
Because the last recession was such a long time ago, some business owners may never have experienced such a sharp downturn and others have perhaps become a little complacent because the good times have lasted so long. Many now feel out of control and are realising that they need to know exactly what is going on in their business.
With all this in mind we have prepared a tough times checklist that focuses on those areas we believe will help businesses to become more well managed in order to survive the current recession.
These are split into three main areas:
Financial planning;
Staff issues.
Customers/clients;
It is extremely important for us all to prepare or review existing budgets and set realistic and achievable targets for 2009 and beyond. Without budgets and targets it is difficult to see how one can plan for the future with any confidence. Potential problems can be identified and addressed well in advance.
Better still would be a formal business plan for at least the next 12 months that should address, amongst other topics, the following:
Plans for the future development of the business;
Product/service development;
Detailed funding requirements; and
A Marketing strategy.
Whether one chooses to prepare a budget or business plan it is important to identify the Key Performance Indicators – commonly referred to as KPI’s - that are applicable to your business. The most successful companies in the world all use KPI’s. Indeed, most commentators believe that all businesses should have them, however too many will give rise to confusion. We would suggest that you use a minimum of five and maximum of ten.
You will have this information somewhere, however, if your existing financial system cannot be easily interrogated to provide you with this information then we would recommend investing in a new but uncomplicated system.
A properly prepared budget should also allow you to undertake what if scenario planning. Management will then be in a position to react immediately to events that may arise outside of the original budget in a way that is going to help the business survive.
You should have options in place for re-organisation should your budgets and / or targets not be achieved.
So often we see clients making sure that they are able to provide their customers with a complete range of products and services. Sometimes this is important but generally we find not. Our advice would be to always concentrate on the most profitable items, especially now in these tough times.
Many businesses never review their internal processes and systems even though some may have been established when they first commenced trading. What was fine on day one may no longer be the case!! We are all only too aware how quickly systems can become redundant by the introduction of new technology. For example, at the instruction of a client and following the purchase of some new equipment, we undertook an internal audit of the quality control procedures. We were able to demonstrate to the client that whilst there were three reviews performed during the production process, the introduction of the new equipment meant that the cost of two reviews far outweighed the benefit that was being generated by having them. Only the one at the end of the process was actually required.
You should also review your administration functions as considerable savings can also be achieved by out sourcing a number of these areas, including payroll, bookkeeping, marketing and human resources.
Implementing the above could result in significant changes to working practices. Certainly, some tough decisions will be required. You cannot afford to carry under performing or unnecessary staff. If redundancies have to be made then it is important that you take the correct advice beforehand.
Remember, you will need to continue to work with the remaining staff all of which will be worried about their immediate future. Explain the strategy and get them to buy into it. Encourage them to suggest ways to streamline and simplify processes. After all, they are the one’s using the systems that have been implemented. They should know how they can be improved.
Target staff with achieving cost savings of 10%. They see the waste far more than you do.
Now is a fabulous opportunity to train staff so that they are all suitably qualified to help the business move forward rapidly once the recession has come to an end. This will certainly give you an edge over your competitors.
A number of recent surveys have shown that at any time 50% of your customers will be looking elsewhere.
In addition to those actively looking around themselves, all your customers will be targeted at some stage by your competitors, in which case it is important to maintain a good working relationship if you are to keep them. When it comes to relationships with customers the fundamental rule has to be to keep existing customers happy and those that you really want to keep, extremely happy!! We must all try and exceed their expectations by under promising and over delivering as, after all, perception is everything.
Instead of listening to them for 80% of the time and speaking for 20%, in the current climate we would suggest that listen for 90% and speak for 10% of the time.
Regardless of your relationship with your customer, you still need to be paid. Even to this day you would be surprised at the number of businesses that still do not set out their payment terms on invoices and their website.
Review who owes you money on a regular basis and make sure that all overdue balances are being controlled. For larger organisations, we would recommend that one suitably trained person is made responsible for credit control. If you haven’t got anyone suitable – outsource – we do!
Try and arrange a direct debit facility with your customers. Offer (and get) early settlement discounts to get money flowing or even, when available, offer extended payment terms through a third party.
But above all, get rid of those customers that can’t or won’t pay. They are a serious drain on your own profits and working capital.
Please click here to downlaod our Tough Times Checklist.
If you action these points we believe your business will have a greater chance of surviving the current recession in a much stronger position.
If you would like to discuss how RHK can help your business please contact David Hall. Tel: 0191 478 1413.
Members: DJ Thompson FCA DC Hall FCA GJ Miller FCA BC Thomas P Storey FCCA. RHK Business Advisers LLP is registered in England as a Limited Liability Partnership No. OC308294. Registered to carry on audit work by the Institute of Chartered Accountants in England and Wales.
