With an economic downturn still being touted just about everywhere, it’s an ideal time to recap on ‘getting back to the basics’ of good business management practice. Cuts in discretionary spending are not the only measure to keep your business running strong. So what steps can you take to improve your business in a tougher business climate?
When times are good and product is moving, companies can run a little blind. It is not unusual to discover that your processes and procedures have not been monitored as closely or as critically as they possibly could, or should. Reducing costs and overheads is usually the first place to turn to when market conditions tighten. But cost-cutting is never as simple as it may seem. It may even prove counterproductive if it diminishes your competitive edge. Perhaps the first place to look is your own backyard, particularly at the systems that should be providing you with a window into how things really are.
Needed is a real and right time view on all components of the business workflow cycle. This includes stock control, sales, servicing, customer contact, invoicing, financials and reporting. Having accurate information on your costs and production flow allows you to take advantage of opportunities to improve returns from all areas of the business.
What you don’t need is to discover that your picture is only partly right. This can occur when you are relying on information from one operations area and applying it to another when that information is not up-to-date, not coordinated, and not in line with your overall plans. You can eliminate this risk and reduce associated administration effort with accounting and business workflow solutions like Jim2, which provides an all-in-one system that goes beyond traditional accounts information. It simplifies and incorporates all elements of a business into the one integrated information resource to provide an accurate picture on how things really are. So what steps can you take in response to a tougher business climate?
A review of your debtors is always good management practice. When business conditions soften it becomes even more important to be well focused on people who owe you money. Chances are they are facing challenges similar to yours. Look for signs of a customer experiencing cashflow problems i.e. payment cycles growing longer. It may be time to offer customers incentives for keener payment terms.
Avoid non-essential costs. Cost control should be an ongoing part of the management function. Think of each dollar your business spends being just as accountable as an investment in equipment. If your dollar spend is not returning you at least a three-fold return, then chances are you are not maximising its return. You may even be losing money.
Walk the floor. Talk to the people involved in ALL the processes in your business and the users of these processes. Most employees are capable of identifying ways to reduce costs, especially when it applies to their work area. You employed these people because they are intelligent people capable of independent thought; they usually have the answer you are looking for.
Be prepared for an increase in service work. In a softer economic climate, income from service jobs tends to increase as businesses hold on to their equipment longer and opt to have it fixed/serviced as opposed to replaced. Equipment replacement cycles will also lengthen as managers try and squeeze all usefulness out of their assets. Make sure you are geared up to handle an increase in the service side of the business. Managing these jobs will become even more important as essential business equipment will usually be ‘hammered’ and not be replaced as quickly as normal.
Get your back-end systems in order. It is important for your business operations to work as efficiently and consistently as possible. Be aware of a lack of integration between your systems and the inefficiencies this brings i.e. double-keying, transpositional errors, staff involved in administration who could be deployed elsewhere, and the time it takes to complete tasks. Are there holes that need to be filled: leakage you don’t know about, lost sales, unbilled stock, unbilled hours, and unnecessary costs? What about your stock control systems? Is everything being billed correctly and at the correct price? Is there some stock that is not being accounted for? Are you accurately invoicing your customers and on time? Are ALL purchases of stock tied to a job? If not, why not?
Multiple-currency exposure? Continuing with the back-end systems theme, and with the recent Australian dollar fluctuations, are your systems geared to cope with multiple currencies or are you battling multiple Excel sheets, transposing data and opening yourself and your business to errors and potentially serious pricing and valuing errors? Does your business system allow you to check your exposure for a specific currency and do ‘what-ifs’ as the exchange rate changes?
Staying close to customers is good practice at any time. It becomes particularly important when conditions tighten. Improving customer relationships can create opportunities for new and repeat orders. It also makes it hard for competitors to get a foot in the door. It may be time to survey customers to identify opportunities: Would customers be interested in more flexible delivery times and payment terms? Are they fully aware of the range of goods and services you offer? Is there something they want that you can produce or source? Start making some calls yourself. Talking to customers about their business will give you a better perspective on your own. Make sure your sales team and front office personnel are just as keenly focused on customers and their plans as you are. What adjustments are needed to strengthen your customer relationships? What does your business have to do to meet their changing needs?
Having the right products for the right customers becomes essential when business conditions change. Stock and purchase controls become critical when sales slow. An accurate view on the changing needs of customers can come from regular assessments of purchase orders and the products left on shelves. When the market outlook worsens, it makes sense to focus on the products and services that sell. So it may be time to cut, reduce, modify or change those that don’t. Slow moving goods on the warehouse floor have to be shifted. They may need to be discounted to move them. It may be a good time to revise your inventory position and set new targets. It makes sense to ensure that your marketing investment is closely linked to sales, and sales and purchasing work in tandem.
Evolution, not revolution is challenging when a business faces changing market conditions. However, staying focused on your goals and objectives provides a framework for decision-making especially when you are considering options to reduce overheads. Be aware that short-term gains may prove expensive if you lose the capacity to pursue longer-term opportunities. Investment in capital equipment should be considered if it will generate significant savings within six-to-12 months of implementation. Ensure that your people and products retain their competitive edge. It’s OK to explore different things, just don’t forget your cash cow. Consider low-cost marketing channels such as online marketing, prospect emails and search engine optimisation (SEO). These new breed of direct and indirect communications are introducing businesses to many new potential customers. Allowing people to more easily find your business and your products can prove extremely beneficial to the bottom line.
Staying positive and open to new ideas and opportunities is critical at the best of times. If the future looks uncertain, it may be a good time to review ways to re-engineer operations. If the answer to the question “How do you do business?” is “The same way we’ve always done it!” Then it may be timely to have a hard look at your business from the factory floor through to the management reports you are using e.g. How many systems do you need to look at to get an accurate picture of your operations? You may need to adopt new technologies and systems. All-in-one integrated workflow programs are changing the way businesses operate. Real-time information is critical. Obtaining a real-time perspective on a business usually requires built-in processes, not programs tacked on to your back-end accounting systems.
Small-to-medium businesses can now take advantage of affordable business workflow systems that put them in front of the big boys. Integrated business systems allow smaller companies to have a shorter time to market for products and more business intelligence. Weathering tough times is about more than just cutting costs, it is about reviewing the whole business workflow cycle from start to finish and ‘getting back to basics.’
-Paul Berger is founder and managing director of Happen Business (www.happenbusiness.om.au), an Australian-owned business software company established in 2001 to fill a growing need in the market for a comprehensive integrated accounting and business workflow software solution.
BACK TO BASICS
A summary…
- Keep a close eye on who owes you money and maybe look to offer them more flexible payment terms. Remember they’re probably going through the same struggle you are.
- Cut non-essential costs. If a dollar spend isn’t giving you at least a three-fold return it probably isn’t worth it.
- Get back to basics and ask your frontline staff where they think you could save money or do things smarter.
- Get your back-end systems in order. Make sure they’re efficient, consistent and integrated.
- Stay close to your customers and improve relationships with them to increase the chances of repeat orders.
- Stay positive and open to new ideas!
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