A Life In Numbers

You may have seen the Sequoia Capital slides doing the rounds amongst CEOs and Investors in the Private Equity world. They start with the bold statement “RIP Good Times” and take things downhill from there.

The overall conclusion is that there are some tough times ahead (no kidding!) and there are some fundamental actions that should be taken by companies to prepare for leaner markets. What struck me most about these actions is that the sensible companies have been taking these steps all along, whether times were good or bad.

The list including activities such as “perform situation analysis”. If you’ve not been figuring out where you are and what’s going on then it’s clear you may find the future a challenge. Another item was “adapt quickly”. Anyone in the SME world knows that this is essential in the early stages but it’s often forgotten as companies grow.

Other’s included were “become cashflow positive as soon as possible” and “spend every dollar as if it were your last”. These have long been the mantras for many successful entreprenuers.

The parts that many investors have latched onto are “make cuts” and “review salaries” and it’s always worth stepping back and looking objectively at the possibility for these. The challenge in this market is making sure that you cut in the right places and don’t harm your business more in the future.

If you haven’t been applying the rules listed in the action plan, then it’s likely you’ve been getting away with it due to the growth markets we’ve seen over the last 8 years. What you may now realise is that what you really need is the expertise to help you understand what you’re seeing and create a plan to make it better.

For many entrepreneurs, the apparent recession and crunch are just business as usual, facing the daily challenge of trying to find new customers in competitive markets and managing their cashflow as closely as possible. There are even opportunities in this type of market, as often competition can fall away and if you’re prepared and flexible new opportunities open up. It’s also possible to find new ways of doing things more effectively and efficiently.

There may be talk of this being a bigger, harder recession or downturn than we’ve had for a while, but these things all run on cycles. They’ve happened before and they’ll happen again. If you have any doubt then find yourself a copy of The Fourth Turning and see how many similarities you can spot in the current social, economic and financial markets. Other good cheery books for this market include The Great Crash by J K Galbraith and Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. They help put everything in perspective.

It is easy to get sucked into the bad news that the tv shows and newspapers like to promote. That’s their job and they’re very good at it. The worse it looks the more you tune in or read. By all means watch and read but you don’t have to believe it’s all true.

The key thing to remember is to step back occasionally and ask what’s really going on. Look past the doom and gloom and the same stories that get repeated over and over again to make things seem worse and seek out the opportunities. They’re there if you look for them and now’s the time when everyone else could be looking the other way. Join the few who can really prosper in this market. And prepare yourself for the good times that will inevitably rise again. And perhaps sooner than you think.

With all the talk of the credit crunch and recession in the news, it’s easy to start to feel nervous about the future. Here are a few tips to make sure your business can ride out any rough waves.

1. Watch your cash closely - make cash and cashflow the priority in all your deals. You might be about to win the deal of your lifetime but if it means commiting serious cash and relying on income streams from the future you may not be around to enjoy it. Think about how you maximise cash in, and minimise cash out in everything you do.

2. Create reliable cashflow forecasts - make sure you know if things are going to get tough in the next few months so that you can prepare for them.

3. Look at where you’re spending and consider the value. Many companies gather a lot of little recurring costs and expenses along the way and they’re forgotten about. You can save a lot just by reviewing where your cash is going in the business.

4. Look closely at your working capital. In tough times, your customers will try and stretch out their payment terms and your suppliers will push for early payment. Keep to the contract terms and try and negotiate for improvements.

5. Credit check your customers. You don’t want to be caught out by a customer going bust while still owing you a chunk of money. Keep close tabs on any poor payers.

6. Review your marketing. Are you still using marketing messages designed for a fast growth boom market? Perhaps you need to reconsider the current economic climate and take a leaf out of the recent M&S “a meal for 2 for under £10″ campaign.

7. Watch your fixed costs. The hardest thing in a recession is to manage your unavoidable fixed costs. The longer you’re tied in, the less flexibility you have. Look at where you can improve flexibility in your expenditure.

8. Watch out for fraud. With rising fuel and living costs the temptation for staff to take a little extra increases. It certainly won’t be everyone but internal fraud is still one of the most common factors impacting business. You need to have strong controls and robust procedures to prevent losses.

9. Broaden your customer base. With the potential for companies to go under or reduce their spending, reliance on one or two large customers could be fatal for you if one of them fails or cuts back their purchases.

10. Look at your financing. As the market contracts, you need to be careful about breaching your banking covenants or finding that the facilities you were relying upon are no longer there. You cannot wait until you need the money to arrange new facilities and you must make sure that you have a Plan B in the event that your current lines of credit are squeezed.

It’s not the first time things have been rough in the economy and it won’t be the last. There are many companies that thrive and survive in these kind of markets whilst others go to the wall, so just make sure you’re in the right crowd by following these tips.

www.marshallkeen.com