What businesses shouldn't do in the current economic climate

‘Eight keys for a strong commercial foundation’

The current uncertain economic climate represents an unknown world for many business managers and owners given 15 years of economic growth. Many businesses have not had to face the challenges and uncertainties associated with a trading environment where there is either declining, little or no growth.


The real question for businesses is “…what not to do in the face of uncertain economic conditions..”?


It’s tempting to slash costs, such as sales and marketing, and hunker down in an attempt to wait it out. Whilst ‘cost slashing’ may improve the short term future of the company through preserving cash, it can seriously damage the medium to long term prospects of your company, due to;


(a) lost prospects/customers who are poached by other, more ambitious, suppliers.
(b) revenue erosion from ‘churn’ whereby existing customers are lost due to bankruptcy, for example, but not replaced.
(c) lost workforce expertise due to redundancy or who leave for fear of job-cuts or de-motivation from working in a struggling organisation.
(d) forgoing opportunities to grow, that arise during periods of market flux.


Indeed, these factors can combine to create a vicious downwards spiral, resulting in collapse of the organisation or leaving it too weak to compete during the upturn. This is particularly poignant given that many economic forecasters are uncertain how long this period of economic uncertainty will last.


Until recently, it has been possible to borrow from financial institutions underpinned by burgeoning sales/ order books or collateral such as property. In recent months, however, institutions have cut lending in attempt to balance their own books. Where borrowing is available the terms and interest could shackle the organisation for years to come.


Borrowing to survive, rather than invest, is questionable. It should only be contemplated where the risk is understood and plans exist on how to manage it and allow the organisation to regain profitability in the upturn. Without planning, it stops being a risk and becomes a gamble!


It is important, therefore, to implement plans to cope with the changing environment – in short the organisation should be put onto a sound commercial footing. The objective of the exercise is to take a strategic or macro view of the company over the next 5 years, rather than taking a reflex short term action in response to an immediate crisis. Inappropriate action can quickly unravel an organisation which has taken years to build.


The ‘eight keys for a strong commercial foundation’, below, should strictly be ‘business-as-usual”. However, they are often dismissed during good-times. When times become harder they become imperatives for survival.


(i) Review business costs and seek cost savings with existing or new suppliers - focus on the high usage/high cost areas. With a ‘squeeze’ you are in a strong position to negotiate better deals. Use these savings to create a ‘financial buffer’ or invest in operational areas, such as sales/ marketing and customer acquisition/retention.

(ii) Review your markets/customers and product portfolio - determine which are running at a loss or minimal profit and which have low strategic importance. Those which cannot be improved you should consider dropping as they represent a drain on resources.

(iii) Review your customer base for opportunities to increase revenues - by offering additional services/products for which you could offer a package deal.

(iv) Review your capabilities and identify NEW markets/sales opportunities - which could be targeted with minimal additional investment (markets under stress or in a state of flux represent golden opportunities for ambitious entrepreneurs).

(v) Review major customers to determine which are either struggling or which might quickly come under financial threat (poor/worsening payment cycles are a good indicator). Reduce your financial exposure to these customers by either re-negotiating payment terms or dropping them as you actively seek/acquire new customers.

(vi) Review your workforce and identify those individuals who are ‘stars’ for your business – the ‘time-watchers’ could be let go with minimal impact to your business.
(vii) In conjunction with the ‘stars’ identify any operational improvements/savings - publicly acknowledging their input and offers of bonuses, as appropriate.

(viii) Ensure management reporting processes are working delivering accurate and timely data on operational areas – this will allow you to quickly identify problems and take corrective action. Areas include: (i) financial management information,
(ii) operational data [WIP, stockholding], (iii) credit checks on major/new customers

Want to know more about how New Mindset can ensure that your business navigates safely through current period of economic uncertainty - call now on 01276 537 282 or email andy.hamer@new-mindset.com