30 Jan 2023
Succeeding During Economic Uncertainty… 4 Key Elements to Consider
Recent world health concerns and the economic uncertainty ahead have created some very challenging times for business owners. Coming out of this health crisis period, today’s economic environment continues to be stressed. Everything has been and continues to be impacted.
- We have recently experienced significant value declines in the stock market
- Interest rates have increased
- And inflation rates continue to remain high
Business operations around sales and customer demand through to supply chain management, costing for goods and services, and tight labor markets continue to be a concern to business owners.
Both consumers and almost all sectors of business are being impacted causing everyone to adapt in order to survive and continue to move forward.
As a business owner, you are facing new challenges with this economic uncertainty, the likes of which you may have never experienced previously.
Today’s environment is not only challenging but also happening at an increasing pace of change. Businesses can not rest on their laurels and sustain themselves with a ‘business as normal’ mindset. It is all about the continued focus on sustainability to manage and weather through these trying times.
Navigating through the current challenges requires a heightened focus on four critical areas that need to be addressed by business owners and their management teams, including:
- Stabilizing the Business
- Revising Your Value Proposition
- Reviewing and Modifying Current Operations
- Managing Cash Flows
However, before we get into that in more depth, businesses first need to ensure their own house is in order. It is vital for the business to be working from a position of stability and not one of panic.
Maintain Control and Acceptance of the Current Times
During these periods of economic uncertainty and challenging times, your employees are looking for strong inspirational leadership from you. To address this, business owners must have emotional control of their own situation.
As a business owner, you must not only recognize and acknowledge the difficult business climate you are in, but you must also accept it and embrace it. Acceptance is vital in getting the business past the why’s and time-consuming look-backs to what once was.
Acceptance will allow you to move forward with full attention directed toward working on a plan of action. This is not the time to be passive, sitting back, waiting, and accepting whatever the market throws at you. Be proactive and take control of your situation during this challenging time!
In Steven Covey’s book ‘The Seven Habits of a Highly Effective Business’, he defines habit number one, being proactive, as follows: “It means more than merely taking initiative. It means as human beings we are responsible for our own lives. Our behavior is a function of our decisions, not our conditions.”
Reflect on this statement as a guide to how you should be acting during this current period of economic uncertainty.
There’s a lot happening in your business environment that you have no control over. Don’t waste your time worrying about them, there is nothing you can do directly to change that.
Instead, focus your attention on those things you can control and the choices you need to make going forward. To guide your business through to times when calmer waters will prevail, you need to have company-wide alignment and a cohesive effort from everyone in your business.
By working through the following four key areas, you will not only position your business to survive but also create a platform for it to possibly grow and prosper.
Let’s take a closer look at the 4 key areas you need to address to navigate through the current challenges.
1. Stabilize the Business
Consider stopping or slowing down any leaks to prevent your business from being overwhelmed by the current business climate. Manage employee costs to match your current and projected sales activity, and reduce or eliminate unnecessary costs. Work with your suppliers to reduce costs and manage cash flow payments. Don’t underestimate the urgency to address these matters as changes will take time to implement. Focus on the bigger impact items first. The more detailed and time-consuming review of smaller impact issues can wait until later. Perform a quick ‘due diligence review’ of your key processes and modify them as necessary to minimize risks and to ensure the business is managing its resources wisely. During challenging, economic uncertainty, reflect on the phrase ‘Cash is King’. Begin to identify and assemble available sources of cash so you have the necessary funds available for working capital as part of your ‘moving forward’ plans.
2. Revise Your Value Proposition
How does your business make money? Who are your customers? Why do they buy from your business? Is it because of your location, customer service, lower pricing, more convenience, best overall value, and unique business offering, to name a few? Seems like pretty basic concepts, right? Success for your business generally lies in the execution process by managing these key parameters. However, in my experience, it is surprising how many business owners are complacent and take things for granted based on past performance. Failure to continually address and understand the answers to these questions will make it very difficult for your business to develop effective customer service strategies, the kinds of strategies that not only retain existing customers but also attract new ones. To remain competitive during these times of economic uncertainty your business will likely need to do more, bring greater value, and be more flexible in its sales offerings. Focus on re-evaluating your customer’s needs and modify your value proposition to meet these changing needs.
3. Review and Modify Current Operations
During economic uncertainty, businesses need to be able to respond and adapt quickly to their changing environment. There will be less time to respond and changes to improve day-to-day operations cannot be hindered through a slow change process. Do a current review of the four main functional areas of your day-to-day business operations to identify what changes need to be made going forward.
- Products and services – You should be looking closely at how the business manages inventory and make whatever adjustments are needed based on current and projected sales activity. If you are in the midst of developing or rolling out any new products or services, be mindful of the costs to launch and market these new offerings. Targeting new customer sales activity is the riskiest and most time-consuming of all business development activities. You may not want to deploy valuable needed resources at this time when these sales initiatives are largely untested and reasonable success is unknown.
- Marketing and sales – Often, in tough times of economic uncertainty, marketing expenses are usually one of the first cost-cutting target areas a business may focus on. You should exercise caution and avoid the simple temptation to slash this expense without a careful review. No doubt some cost reductions will be warranted as they may not be delivering results as expected. However, don’t be afraid to spend some time developing a well-directed, targeted campaign that can be highly effective in getting more customers to engage with your business. Don’t stand pat by making the mistake of trying to manage through tougher times by just cutting costs and then hoping customers will continue to support your business. Finally, be careful about the temptation to cut prices to keep sales activity going. You need to plan for a continuing profitable business and reducing profit margins over the long term will jeopardize the business unless you have also altered your business model and lowered your operating costs accordingly. Consider opportunities to cost-effectively bundle your products or services to provide an additional benefit to your customers. This strategy may lower your margins slightly, but this could be more than offset by your customers' increased value proposition they receive while allowing you to maintain your current pricing structure.
- Systems and processes – This infrastructure helps ensure your business operates smoothly and efficiently. When faced with times of potential sales pressure due to economic uncertainty, a current review of your customer-facing activities may be very beneficial. Encourage team brainstorming sessions to identify what could be done to enhance the overall customer experience with your business to bring greater value. Work with your team to streamline existing internal procedures by updating or changing systems to improve efficiencies. Review your current IT investment costs and seriously consider further investment if it will increase customer service, increase productivity or reduce costs in the short run and long term.
- People Resources– Ask most business owners and they will say their business success revolves around having a good team. During this time of economic uncertainty, business owners need to recognize the importance of good open communication. You need to keep your team focused on the task at hand and limit exposure to them jumping ship during this period. These are very challenging times to recruit people so focus on retention at all times. Communicate regularly with your team so they are aware of how things are going and the plans for the future of the business and how they fit into that. Now more than ever, your team needs to be focused on your customers and the critical business success factors you have identified in your “moving forward” plan.
If your business needs to address personnel reductions, be mindful of the impact on your remaining team who will be tasked to do more. In managing labour costs, keep an open mind for possible shorter-term options like; temporary outsourcing or part-time help in lieu of hiring full-timers, offering performance bonuses to take away some of the ‘bad news’ stings, or considering work sharing arrangements or making across the board salary cuts instead of layoffs or letting people go. You will likely require these folks when things calm down and you begin planning again for future growth.
4. Managing Cash Flows
During these trying times, management of cash flows will take priority over generating profits until things settle down and the business environment starts to turn around. You need to have heightened focus on cash management to optimize existing resources. Take every opportunity to ensure you get paid by reviewing and tightening up your existing credit policies. Look at ways to get payment in advance, receive interim progress payments to cover your costs being laid out and secure final payment terms. Ensure your business invoices customers on a timely basis and that you have systems in place to follow up collection. Economic uncertainty means you can’t afford to just sit and wait in the hope for the money to come in.
Many businesses often pay for capital expenditures without any financing, but this draws away from available cash flow. Look to finance capital expenditures wherever possible to preserve the cash flow needed for the working capital of the business. Look to manage your supplier payments and request payment term extensions where possible without negatively impacting your supplier relationship. Proactively address and review inventory levels to reduce cash-tied-up inventory. Review whether to implement spending policies and controls by setting authority levels. Finally, maintain a culture of cost control management and cash flow preservation. Often when businesses face tough economic times, this can be the impetus for improving your company as you move forward.
As you will no doubt appreciate, all the above measures will involve focused attention and a lot of work. Taking the necessary time to develop and work through a plan will not only help your business weather the current economic uncertainty, it will also help strengthen and position your business going forward. Turn to your team and your business advisors to help you get ramped up a lot quicker than you would otherwise do on your own. When the economy is on the rebound and you have a much more disciplined, streamlined and efficient operation, you’ll be glad you made the investment in your business plan.
If you are thinking about or currently working on developing your business strategy plan and are in need of assistance, please contact Rick Gendemann, one of our business advisory leaders. We look forward to the opportunity to connect with you to discuss your business operational issues and address how we may be able to work with you on developing and implementing your business strategy action plan.
Rick Gendemann, CPA, CA, is a Business Succession Leader with Manning Elliott LLP. Rick can be reached at (604) 557-5760 or firstname.lastname@example.org.