6 Strategies to create a stronger, more resilient business
In the current climate, many small businesses are facing unique challenges to continue operating and remain profitable. These six strategies can help you build a stronger base to help you navigate and come through a crisis as a more resilient business.
1.Build short-term cash reserves
If you don’t have cash savings, then you may be able to free up cash within your business to tide you over. There could be machinery you no longer need, or vehicles which could be sold and turned into cash. These could then be leased back when you need them.
Other ways to raise extra working capital: Sell parts of the business
- Liquidate excess inventory or raw materials.
- Re-invest your own capital.
- Refinance against your existing assets.
- Find external investors.
Look closely at the business assets on your balance sheet to see what you don’t need and consider what you can convert into cash without impacting your core business.
2. Strengthen the foundations
Now is the time to make permanent changes to strengthen your business, which are often things you’ve thought of doing but haven’t had the time or didn’t need to do as sales were steady. This includes how your business can operate more cost effectively while maintaining or improving efficiency.
Take time to document every step of your business process to improve your capacity to do more with less. Other ways to be more resilient:
- Diversify into new growth markets (even in times of crisis some businesses will thrive).
- Widen your product or service mix.
- Negotiate new terms with suppliers.
- Amend your policies to collect payments faster.
- Scale back non-essential staff.
- Focus on core business.
There will be several key decisions to make your business stronger, and it’s likely you’ll instinctively know what needs to go and what needs to stay.
3.Maintain your margins
A reduction in gross profit is a key warning sign. Monitor the things that can negatively affect your gross profit margin such as:
- Increases in raw materials or product costs.
- Reduction in profitable sales.
- Waste during production.
- Delinquent payments from customers.
Select the two or three key warning signals that matter to your business and then set up regular monitoring to remedy any decline.
4. Tighten payment collection
An efficient credit control system helps speed up your cash collection and reduces bad debt by limiting how much credit you provide to customers. You could consider other collection options:
- Request deposits or progress payments.
- Monitor late payments.
- Set up a process to follow up with debtors.
- Consider charging a low interest rate on late payments.
- Consider a debt collection agency or specialist lawyer in extreme cases.
5. Identify future cash flow
Sketch out cash flow scenarios to identify what your business would look like in the future where sales drop (or cease) over a period of time and develop contingencies in advance. For these scenarios you could consider:
- Costs you will no longer have.
- Impact on gross profit and margin.
- Revenue needed to break even.
- Length of time it takes to recover.
- Tighter controls over inventory.
Each drop in sales will usually have a corresponding fall in variable costs (materials, cost of goods sold), but at some stage you may find it’s not economical to continue with certain products and services if the fixed costs are too high. In these cases, you may have to lower your overall cost base (possibly making staff redundant, move locations, or close less profitable product lines).
With each of the cash flow scenarios, you could outline the actions you may need to take to continue trading now and in the future.
6. Protect your supply chain
It won’t only be your business that’s impacted by a crisis. Outline what may happen to your key suppliers and identify risks to your business if they were suddenly no longer able to deliver. This is especially critical if you have exclusive or hard to replace materials or products as part of your own delivery to customers.
Develop an alternate supplier plan and consider reaching out to these businesses as back-up if your existing supplier can’t deliver.
Your future plans
You may be able to pivot your business to find new revenue streams through finding different customers or markets, developing new products or services, or finding new ways to sell to your customers. Create a plan to implement changes to help bring your business back to positive cash flow and profitability.