By Henry Ejdelbaum, MD of ASC Finance for Business
You’d be forgiven for thinking you need a miracle right now to manage your business finance, especially in the wake of such credit tightening and rising costs.
However, what you may just need is some good old fashioned business advice. There are ways to protect your business from such economic changes.
But who do you go to? It should be a company or professional adviser who has been through a credit crunch before, one which has thorough market knowledge and experience.
Make the most of the systems and resources available to you, to give yourself as much room to maneuvre as possible. Looking at business finance, planning, costs, marketing and your professional advisers, the following should help you on the road to beating this ‘squeeze’ and protect your business.
1. Plan Ahead – Failing to plan is planning to fail
It is vital that you have contingency plans in place so you are prepared for any kind of economic change. Plans should be considered for buoyant markets, downturns and also for when things are just plain average.
Following this philosophy, you should have no need to panic in times of change and your business should remain stable and continue to grow.
Small businesses tend to put such planning on the back burner; it can be seen as low priority in relation to making sales, purchasing stock, managing staff and all the general day-to-day tasks.
“This is completely understandable,” I hear you cry. “I have no spare time, I hardly have time to sleep let alone plan for whether it may rain or shine sometime in the future,” you might add.
Entrepreneurs tend to follow their gut feeling, their instincts. Your know-how is what manages your business, but sometimes this may mean sticking to what you’re good at.
When tough times rear their head, having a plan of action and the right systems in place can make or break your business and you may need to step well out of that comfort zone to succeed. Plan for the short-term, mid-term and long-term, and build flexibility into whatever you plan. Be realistic.
2. Be Flexible – Deal with more than one bank
Arrange your financial affairs with more than one bank so you don’t have all your eggs in one basket. You can have your current accounts, loans and overdrafts all with different institutions and your asset finance somewhere else – this will help maximise your finance options.
If one bank stops lending, you can go to the others, and if one is offering high rates, you have other options of where to go – choice in the market is what you need.
You will have more negotiating power and maximum borrowing potential using this strategy. You can also use different asset classes such as Hire Purchase for equipment factoring or Invoice Discounting for your debtor book.
A typical scenario right now is that an entrepreneur will go to their bank and expect to be offered a good deal on a loan, especially when they’ve been banking there for years, but more often than not, the bank can’t help because their criteria are too tight. It just cannot be assumed that relationships with banks will remain unaffected by the credit crunch.
The entrepreneur will then find a commercial finance broker but it may be too late. Brokers can help you find the best finance for your individual circumstances by searching the market on your behalf.
Their comprehensive knowledge of the market can help you spread your money and your options to give yourself more chance of success.
3. Manage Your Costs – Do something different
How often do you check your costs? Which costs can or should you reduce?
You may not think it’s necessary. Let’s say you’ve set up the best deals with all your suppliers, your marketing works for you and you have a decent turnover – so if it’s not broke, why fix it?
Most businesses and their employees are resistant to change; we can easily get caught in a comfort zone, we like things to be familiar.
How successful do you want your business to be? Is it not worth trying something different, seeing if you can get a better deal elsewhere?
When it comes to your finances, and especially your loans, don’t overstretch your business – shop around until you’re convinced you can ensure a healthy balance sheet.
4. Don’t Let Yourself Become Depressed. Go out and get more sales – the harder you try the luckier you get!
How else can you increase your sales? If you work on the basis of anti-cyclical marketing, when times get tough you have to do everything you can to win more business and keep your key clients.
You don’t have to spend more money. Just don’t stop marketing.
On the contrary, be creative and focus on what you do best. Focus on your USPs (Unique Selling Points) and use them to your advantage to increase business.
Can you diversify? Look for opportunities – there is always new business out there.
You may even wish to increase certain costs, such as marketing costs to boost sales. If you have financial flexibility (see point 2, above) you’ll be able to increase your spend in a credit crunch because you’ll have planned for such an eventuality, and you will get better deals.
5. Don’t Be Afraid to Ask For Help – There’s no such thing as a silly question
How often do you speak to your professional advisers? Don’t be afraid to ask for help and advice throughout the year.
Don’t just go at year end, or at the last minute when you really need advice.
The sooner you involve your accountant, solicitor or financial adviser in your affairs, the better they will be briefed when quick action needs to be taken. Such professionals are excellent for bouncing ideas off or getting a new slant on how you could improve the running of your business.
You should keep in regular contact with them, especially when markets are tough, but remember they are not just there for difficult times – they can also help you avoid disasters. Let them help you make the most of your business and keep you ahead of difficult situations.
Different markets present different opportunities and changing markets will always cause a shift. Look at the ways in which you can make the most of this period of change.
How can you get ahead of your competition – what sets you apart? Focus on how and why the market needs your products and services.
Protect your business through change and you can ensure healthy profits.
