The Credit Crisis – Tools For Business To Improve Chances Of Survival
Wise words, indeed from Mr Einstein almost a century ago, and in this almost unprecedented global credit crisis where business credit has all but dried up, it’s important to remember and focus relentlessly on the practical “blocking and tackling” steps necessary for business survival and eventual prosperity.
Businesses are not just founded on financial numbers and tangible assets. Knowledge, relationships, trust, character and effective leadership are also essential to success.
What should business owners focus on to maintain operations and survive in these tumultuous global economic conditions? There are certainly no panaceas or instant prescriptions for success but here are some fundamental guiding principles that we have learned, from our extensive management experience, are critical to success:
Cash is king. When the cash runs out, the business dies and all of the assets, customers, staff and IP evaporate overnight. Implement strategies to save and hoard cash to give your business the cushion it needs to be able to ride out the storm.
Answer this question; “If my business revenue suddenly dropped by 30%, would my business survive? Immediately right-size operations to be able to answer yes and be positioned to survive sudden market changes and ready for the upturn when it eventually comes.
Re-evaluate your old business model in the current down market. What do customers really value and tailor your operations to specifically meet their needs. Up to 80% of activities in businesses do not add value to customer needs and, therefore, are excess costs and unprofitable waste.
Relentlessly drive unnecessary costs out of your business and supply chain. Any expenditure that is not essential to delivering optimum customer value should be eliminated because customers increasingly will not pay for it. Get closer to key vendors to determine how to improve service at lower total cost.
Execute, execute, execute daily. Time is not your friend in a crisis when customers and markets are changing weekly. The businesses that continue to prosper over decades are the ones that can constantly anticipate customer trends and meet them profitably.
Get much closer to your lenders. Communication is key to building and sustaining trust. Frequently communicate financial results, forecasts, business trends and challenges, and importantly how you are managing to effectively overcome them.
Don’t be tempted to “warehouse” people in a downturn. Staff costs are often the greatest current fixed cost and the timing of the next market upturn is unknown. Conserve cash now and reduce payroll expenses to fit a smaller market and business model that makes sense.
Continually evaluate the strengths and weaknesses of all management & staff to ensure that you have the right skills, experience and relationships to meet immediate customer needs. Don’t be afraid to make quick and frequent changes to meet changing market and customer needs. Very few people are truly indispensible.
Communicate frequently and openly to all staff. Encourage creative thinking and ideas from all quarters to streamline operations for greater efficiency and lower costs. Not all good ideas come from management and you will build loyalty. Many small improvements can lead to big savings.
The above is meant as general principles only and is not a substitute for advice in specific situations.
Dauntless Capital Partners are very experienced in successfully leading businesses in many industries and in implementing effective capital structuring solutions. We welcome conversations with business owners where our experience and capital solutions may be beneficial in current market & economic circumstances.