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Help avoid the crunch with strong foundations

21 January 2008

The headlines in the national press continue ... profit warnings at their highest since 2001, predictions of dramatic increases in fraud in companies to avoid financial difficulties, and a recent Institute of Directors (IOD) survey suggesting that nearly two thirds of its members feel that the "credit crunch" is affecting their investment decisions.

The outlook for the UK and leading world economies at best looks uncertain, and this is bound to have an impact on your business in some way or another. So what should you do to help whether the potential storm?

The ability of your business to get through the bad times will be dependant upon how strong your foundations are. These foundations include the principles upon which your business is based, including in particular the financially based controls and procedures. A house built on sand will surely fall in a storm ...make sure your business is underpinned with solid foundations through good practice and robust processes.

Here are our ten tips for building a strong financial foundation for your business:

  1. Always know your financial position.
    Make sure you get timely, accurate and meaningful monthly management accounts and information. Make sure this is properly reviewed, understood and acted upon. Ensure it includes pertinent Key Performance Indicators relevant to your business.
  2. Always understand your cashflow.
    Cash is always king, the very lifeblood of your business. Understand it. Know where you are now and what is going to happen to your cashflow over the coming weeks and months. And, make sure it is always up to date - things change rapidly.
  3. Understand what is going on with your customers.
    Keep close to your customers, understand what is happening in their businesses, what issues they face and assess how this may impact you. Ensure you keep your credit checking up to date, and monitor their financial position. The last thing you need is a bad debt and the loss of a customers future income.
  4. Make sure your market intelligence is up to date.
    Keep your ear to the ground, what are your competitors up to? How are they performing? What threats might there be, or what chinks are in their armor that you might be able to take advantage of?
  5. Update your business and strategic plans.
    If you don't know where you are going how will you know if you ever get there? Update that business plan, review your strategic goals and work clearly towards them.
  6. Sweat your assets.
    Make sure that every asset in your business truly is adding value and is indeed an asset! Review stock-turn and obsolesce, use of plant or machinery, premises etc. If you don't need it sell it and build up your cash reserve. Make sure what you have left is really working for you.
  7. Manage your business risks - don't avoid them!
    Every business has risks, understand yours and manage them. Make sure you have a strategy for dealing with those that could adversely affect your business. Ensure none of them could be a fatal blow!
  8. Look after your key people, reduce your dependence on them.
    Every business often finds itself reliant on a number of key people. Ensure that they are happy and motivated and that they are not looking outside for new opportunities. At the same time build up the processes in your business to make yourself less reliant on them.
  9. Find ways to improve your profitability.
    Take a long hard look at your expenses and costs, what don't you need, what is adding no value. Also review your various product lines, which ones are making you money and which ones are really a drain. More profit means more cash and greater strength.
  10. Manage and look after your external stakeholders - keep them onside.
    Often forgotten, but if hard times come then your good relationships with your external stakeholders could pay dividends. Keep close to your financiers (the bank or whoever), keep them informed and comfortable. And don't forget about any shareholders who may not be that involved in the business.

Be prepared and be ready.

If you would like any further help or assistance with any of the areas discussed above please call us on 0800 180 4265


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