6 Rules for Survival in an Economic Downturn
November 2008 (Doug Richard)
1. CASH IS KINGManage cash - if you're out of cash and out of credit, you're out of business. You need a good 13 week cash forecast, generated NOT from the income statement but from a detailed understanding of receipts and disbursements. Monitor trends in your cash flow to keep on top of any sticky situations.
2. COLLECT WITH PASSIONOn a related point, manage receivables aggressively. Businesses are holding on to their cash longer than before, resulting in late payments. These late payments are having a ripple effect through the SME community. Receivables will trend up, and some of your customers may become troubled as well. Don't keep extending credit.
3. DON’T DEPEND ON ANYONEKeep a close eye on your suppliers, and have alternatives. In a downturn, some of your suppliers may become troubled as well, and you need to think about alternative sources for your critical inputs.
4. YOU CAN ALWAYS CUT MOREYou can forecast expenses, you can’t forecast revenue. Look for places to cut expenses. When times are good, companies tend to add staff and expenses that are nice to have, but not critical. It’s time to take a fresh look at those.
Keep focus on core markets and spend money solely in those areas. Avoid putting cash and time into areas that have proven less profitable. Many companies begin by cutting advertising / marketing budgets. This can be a mistake. Instead of cutting these budgets, review the methods you are using. Are there more cost effective routes to market? Does your current strategy bring in the right results? If not, rework your efforts to deliver the best possible results.