Recession Proofing Your Business
There has been a lot of recent press comment about the rising level of personal borrowing within the UK and the rising number of bankruptcies. Publications by some of the major accountancy practices suggest that the economy has been dependent upon consumer spending and government spending and that both are now being curtailed in the light of rising levels of debt.
In addition, it has been suggested that the UK needs to look towards inward investment and exports to sustain its economy. This is not encouraging when viewed against current levels of the export of core services and products.
This raises the question as to whether the UK economy could be heading towards a slump and what the implications of that could be for business owners. Typically, we might expect to start to see invoice payment terms being stretched, non-essential purchases being delayed or cut back and increases in the number of business failures. A key issue for business owners is how to "recession proof" their business against the down turn.
Tips to Recession Proof Your Business
We have put together a list of tips and advice that you can take to "recession proof" your business:
- "Cash is King" - if you have cash reserves you will be better placed to cope with a slow down in debtor payments or client failures. By putting in place an invoice finance ( factoring or invoice discounting) arrangement, you can make available the cash that is tied up in unpaid sales invoices. Even if you don't need to call on that cash now by having a facility in place you know that you have the ability to access cash if the need arises. By arranging a facility prior to suffering financial difficulties you will receive a warmer reception from the financiers and improve your bargaining position when it comes to discussing pricing. If you already have an invoice financing facility consider seeking advance approval for overpayment facilities in case they might be required or using other assets, such as stock, to release further availability.
- Minimise unnecessary expenditure - it might sound obvious but when sales are going well it is easy to allow expenditure of non essential items to increase. By being careful with expenditure from an early stage you will minimise the level of sales that you need in order to break even. If the economy enters decline you will be better able to cope with a reduced order book, if it doesn't you will have boosted your profitability.
- Bad debt protection - one of the key features of recession is customer failures. You can protect against this with a credit protection policy or non recourse if you use invoice finance.
- Customer lock ins - it depends on what type of product or service you offer but if possible seek to contractually lock customers into using your services for a period in order to give you some predictability of income. If they start to experience a reduction in customer orders they might consider cutting the use of your services or orders for your products.
- Minimise cost of borrowing - any reduction in the cost of your borrowing will translate to a reduction in your break even position and profitability. Why not look around for competitive quotes.
- Don't stop marketing - a key mistake that many businesses make in the face of recession is to stop marketing. This is an area of expenditure that is often first to be cut. This can be counter productive as it could impact on your volumes of sales. A far more sensible strategy is to stop any unproductive marketing activity and to consider increasing investment in the marketing activities that work.
- Focus on recession proof customers - once again, this depends very much on the type of business that you have but if you can focus on sectors that are better able to weather a recession such as financiers, essential business services and government owned organisations rather than sectors that are likely to be badly affected e.g. construction, PR & advertising, training etc. you may be able to improve your own security. If you are planning marketing activities perhaps you could be more selective about the types of customers that you target.
For more information about how invoice finance might help recession proof your business contact us:
