It starts with your cash flow
They say ‘cash is king’ for a reason – without a positive flow of cash, businesses are in limbo, so it’s important to address the facts: what’s coming in and what’s going out. Now is the time to sit down and look at all outgoings; look at every single line and ask if it is really needed. Take a red marker and remove those that you can live without (they can always be added later when business improves!)
Depending on the size of the business, it may be an option for some entrepreneurs to work from home more permanently. No longer in need of an office, you are not just saving on rent but also utilities, internet, refreshments… the list goes on. Monthly bills can also add up, so it’s a good time to look at when the contracts expire. Even if it’s not for a while, suppliers may be able to offer businesses a better deal, so take a look at what else is on the market and use other deals as a benchmark for negotiations with your supplier. Long term survival is the goal here.
Facing the facts… how has the competitive landscape changed?
Business owners should take this time to look at their competitive environment and see where they stand. Face the brutal facts and ask if they can still deliver what their customer needs. How does this stack up against the market and your direct competition? Can this last?
The Porters 5 forces model keeps this simple – a business needs to be aware of:
- The threat of new entrants – is it easy for new entrants to enter the market? Do low entry fees make it easier? Ie if they offer services, the overheads to enter the market could really be quite low. Is it a specialised area that requires heavy investment and/or expensive training? As other people are looking at ways to rebuild their business, business owners should be aware that competition may appear suddenly if barriers to entry are low. What do you have in place to survive if this happens?
- Bargaining power of suppliers – how easy is it for your business to switch suppliers? Is it a monopoly and are the suppliers likely to increase prices with little or no warning? Are you fully dependent on a particular supplier that then has power with prices/logistics? Is it easy to switch supplier? What is the cost?
- Bargaining power of buyers – what power do your buyers have? Customers are very price-savvy and your competitors would always love to secure new business – what can you as the business owner do to add value and encourage loyalty from your client base?
- The threat of substitutes – how easy is it for customers to find a substitute at a lower price/what can your customers do for themselves which will impact the bottom line of the business?
- Competitive rivalry – how competitive is the environment? What are competitors doing to keep customers/build loyalty/attract new customers?
Position business for recovery
Businesses will benefit from realistically profiling their client base. During any downturn, the buying habits of customers will be affected as budgets and disposable incomes change. It is worth business owners taking some time to split their customer base into different profiles:
- not spending at all
- spending less and wanting more value
- comfortably spending, but more selective in how they spend it
- not affected – life goes on as normal
Look at where you make most of your profit, how you need to evolve your product to meet this market and how you need to ‘show up’ for the consumer profiles you wish to keep/develop.
All in all, the most important thing to remember is that it’s not the challenges you face, but how you respond to them that really matters. Be brave, be focused and keep going!