'Turnover is vanity, profit is sanity. Only cash is reality' is a mantra directors would be wise to bear in mind.
2. Sweat your balance sheet
Continually seek efficiencies, even in good times. This will protect you against the worst of bad times.
3. Stock control
Effective management of stock can improve profit margins and mean the difference between success and failure, especially in a downturn.
4. Bad debts
Rigorously review and chase outstanding invoices; do not allow your business to fund other companies. A £5,000 bad debt, in a business with profit margin of 5%, will require £100,000 of new business to service it.
5. It's good to talk
If you keep lenders, customers and suppliers regularly informed, they are more likely to show compassion, understanding and support in a financial crisis.
6. Spread your risk
Do not rely on one customer too heavily. That way, if they go into insolvency, the knock-on effect on your own company will be minimised.
7. Ransom suppliers
A supplier's insolvency can also be dangerous if you overly rely on one for key items. Do not be a hostage, otherwise your vulnerability may be used against you to force price increases, even on an existing contract.
8. Know your boundaries
A good manager is one who recognises that, sometimes, outside advice will provide the best solution in a downturn.
9. Act fast
Directors and owner-managers need to be able to react quickly to changes in their marketplace. They need to ensure they have a decision-making process in place that enables quick responses to sudden economic threats.
10. Take advantage
A downturn affords the opportunity to take on skilled staff and new clients from those businesses that ignore the warning signs.
About the Author
Len Collinson has been the FPB's National Chairman since 2002. He is a founder and a director of Collinson Grant Group, the firm of international management consultants, and has investments in three other companies.
