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Recession Proofing

26 May 2012 No Comment

Firstly, there is probably no single recipe which will enable a business to become totally recession proof. And, even though our line of business is one of life’s certainties (the two certainties being death and taxes) we are not immune to recessions. So, we are taking steps this year to minimise the risk of another recession having an adverse affect on our business and that means consolidating our three operational wings (accounts and bookkeeping and payroll) under one banner.

Secondly, you should adjust your business plan now, to minimise the risks to your business. Don’t have a business plan? Oh dear! In that case just bear in mind this famous quote from Sir John Harvey-Jones:

“The only good thing about not planning, is that failure comes as
a complete surprise and is not preceded by a period of anguish and fear!”

Follow our 5 step guide to business efficiency and you should find that your business will be more stable than most.

Go upmarket or downmarket

Wealthy clients are less price sensitive and are less recession prone. Luxury cars and luxury restaurants still achieve adequate sales during recessions, because most millionaires continue to be millionaires irrespective of what is happening to the rest of us.

Price conscious consumers like to reduce costs. The local One Pound shop will do well if there’s a recession. If you’re into the “budget airline” model, then the only way to make money is to stack it high and sell it cheap, and to try to make premium sales from charging more for “bolt ons”.

Staying in the middle of the market will lead to problems for your business, because the squeezed middle will be squeezed more.

Focus on the growth sectors

IT is a growth sector. There simply are not enough well qualified people to do all that needs to be done. You’re unlikely to find any business that wants its hardware and software to be downgraded or to evolve backwards. Companies are prepared to spend lots of money on having the best kit they can afford and the best solutions.

IT is one example. You can probably think of others. Selling into any growth sector, if you can, is a smart move.

More marketing equals more sales

Henry Ford once said that if he was down do his last dollar, he would spend it on marketing. Look at it from the opposite point of view – that’s the business that does nothing – there is a so-called modern ancient Chinese expression about that. Go ahead and read this aloud (Chinese accent optional):

“Man who stand on top of hill with mouth wide open,
wait long time for aromatic duck to fly in.”

What that means, is that if you don’t go out and look for new business, it is not going to come and look for you!

Cut unnecessary costs

Cost cutting does not come first. More sales comes first. If you make sales of 100,000 per year and you cut all your costs, your maximum income is only ever going to be 100,000 per year. So focus on sales first. Then, it does make sense to trim your unnecessary expenditure as well. Go through your bank statements. Look particularly at the direct debits and standing orders. Are you paying for stuff that you’re not using? Why? Stop paying for things that you don’t use, don’t want and don’t need.

Credit Control

Chase all your debts. You can have a healthy sales ledger, but if you don’t get the cash into the bank, then you’re just going to be another statistic in the next recession. Most businesses that go out of business, do so because they have cashflow problems, and not because they have insufficient sales. Get tough on non-payers. Stop working for people who don’t pay you. Have a policy on credit control, or borrow somebody else’s! You can find our credit control policy here.

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