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Prepping for tough times

Smart business owners need to implement strategies that will help them succeed in an uncertain economy.

Smart business owners need to implement strategies that will help them succeed in an uncertain economy. The following are some practical steps you can take to help you land in a better position if things take a turn for the worst.

Analyze your cash flow
Cash is the lifeblood of any business. It matters more than earnings. To analyze your cash flow:

• Focus on working capital and the cash conversion cycle.
• Forecast near-term cash receipts and cash disbursements based on realistic financial projections. Keep in mind customers will start to pay their bills more slowly than usual as the economy slows down.
• Continue to reduce inventory levels and replenish on a just-in-time basis.
• Continue to liquidate other non-redundant assets to free up cash.

Stay close to your banker
If you have a good working relationship with your lender, you may be in a better position to renegotiate your current loan facilities. Treat your banker as a partner and keep them informed of critical issues affecting the business and the industry. As long as your banker maintains confidence in the company’s direction and owner, chances are the bank will stick with the business. You can continue to have the bank’s confidence in you and your business by giving them your plan for how you will fix the business, and then going out and doing it.

Continue to slash costs where possible
Tough economic conditions and falling sales volumes require cost-cutting measures wherever possible. When sales volumes are expected to decline, costs need to be closely monitored.
Consider:

• Reducing spending – talk directly to floor and office employees to see if there are any items that can easily be cut without affecting the sales levels of the company.
• Deferring non-critical capital expendi-tures in order to conserve cash.
• Making tough decisions about payroll costs. Don’t be too quick to rehire once sales volumes start to increase.

Concentrate on good customers and suppliers
A careful review of your customer base is critical when developing a financial forecast. If customers were slow in paying their accounts even as sales volumes were starting to increase in 2009 and 2010, it could be a red flag that these customers may not be able to ride out a new recession. No company wants to drop customers when sales are starting to decline, but it may be prudent to tighten credit terms with some customers during this period of continued economic uncertainty. You may have to sacrifice some sales levels in an attempt to prevent a bigger loss if the customers go out of business.

Continue to bargain for favourable credit terms with your suppliers, and if possible, negotiate for early payment discounts. Most suppliers will be hungry for cash. Consider whether you can slim down the number of suppliers you are currently using to qualify for larger volume discounts with your existing suppliers.

The above tips should allow you and your business to weather possible storms ahead, and come out in an even better position. If you are concerned about the viability of your business, remember that the earlier you seek help, the greater your chances of success.

David Filice is a senior vice-president and partner in the Restructuring and Insolvency Practice of Fuller Landau LLP, Chartered Accountants and Business Advisors (www.fullerlandau.com). Contact him at 416-645-6506 or email dfilice@fullerlandau.com.