Economic headwinds got you looking to the horizon? In this article, Jamie Davison of Carbon Group suggests ways you can shore up your business for any eventuality.
The effect of a downturn in the market has strong implications on businesses of all sizes. No matter how successful your business seems to be, a gloomy market can have negative effects in terms of revenue and the chances of growth. A loss of sales, clients ending your services and diminishing asset value are just a few examples that business owners may have experienced first-hand.
But an economic downturn isn’t always bad. Opportunities exist all around us, we just have to open our eyes to them. Of course, certain prospects that are readily available in a booming market are non-existent. Instead, business owners should direct their focus elsewhere.
As a business that has experienced a variety of market conditions with highs and lows along the way, here’s just some of the ways we at Carbon Group suggest can turn a dying market into one full of opportunities for success.
1. Make the most of reduced rents in the property market
Over the last couple of years, there has been a dramatic fall in the value of real estate in Perth. Bad news if you have investment property, but fantastic news if you’re a business owner.
Planning on growing your business over the next few years? Then now is the perfect time to take advantages of the current low rental rates. In Perth, we’re seeing rent reductions of between 20 to 40 percent of previous rates, and the added bonus of lower upfront payments.
Put your negotiation skills to the test and approach rental agencies with an offer; property is much better having a rental income at a low rate rather than being left vacant. While your business is experiencing a quiet period, you’ll have some free time that can be spent moving premises. Often large businesses end up downsizing office space in an economic downturns, leaving behind up-market fitouts valued at hundreds of thousands of dollars that you could pick up for next-to-nothing, if not free.
2. Outsource technical tasks to an expert
Businesses regularly try to save costs by piling work onto one person in the office. An example is a firm allocating high-end accounts payable functions to their internal PA. But finding a PA who can do this high-level bookkeeping is difficult as the two roles require very different skill sets.
Instead, it would be more effective to engage a bookkeeping firm to lodge the BAS and oversee the bill runs, allowing the PA to focus their time on their PA duties. It also eliminates the potential for mistakes to be made on the bookkeeping side of things, which can end up costing your business thousands and in the long run, not to mention the huge headache.
3. Clear out legacy expenses
It goes without saying that in an economic downturn, as a business owner, you need to cut costs. The key is knowing where to make these cuts.
It would be a bad business decision to make cuts in areas such as marketing or staff amenities and training, as these things help to safeguard your business for the future. A quieter time is the perfect opportunity to build on these foundations that are needed to build your business empire in years to come.
Instead, look at your spending habits during an economic boom. Those legacy costs where you didn’t care about the occasional $1,000 here and there, or the monthly subscription that you never actually used but are still paying for are the ones that you can now look to do without.
4. Use cloud-based technology to improve internal systems
The increased availability of cloud-based applications means that these systems are not only available to large, multi-million-dollar companies. Small businesses can now take advantage of online software without forking out the massive expense.
You’ll be able to save time and effort by streamlining an extensive range of tasks, including job management, inventory management, invoicing and debtor tracking, which can all assist in keeping cashflow positive. Saving on human hours helps to save on labour costs. In addition, you’ll eliminate the risk of falling behind your competitors who have adopted these systems and therefore “leaned out” their overheads, allowing them to be more price competitive for the same offering.
5. Pay suppliers early in exchange for discounts
In this market, cash is king. What that means is if you offer to pay your invoices early, often your suppliers will offer a slight discount. This could be as high a five percent on certain items – which again is straight profit. For businesses who have large cost of goods, this kind of strategy can be very lucrative.
6. Collect money upfront or on time
A well-organised collection process is key to avoid being left with large debtors and even bad debts as some companies fail to survive this economic climate. When clients need work done, they are happy to pay for it. The longer you wait after this period, the less likely they are to pay and the more likely it is to take you time to collect it.
Money in the bank puts you in a stronger position for the rest of your business and means you can make more of the decisions above on the front foot instead of the back foot. There are plenty of online accounting software programs that have a debt collection feature, so you don’t have to spend time chasing payments.
Now that you can see that an economic downturn isn’t all doom and gloom, focus on the positives and look for the opportunities around you. There are plenty out there that can strengthen your business for future success.
For tax, bookkeeping, BAS and financial advise please get in touch with us:
Lvl 1, Bld 6, 205 Leitchs Road Brendale QLD 4500
Ph: 1300 138 119
The article Six steps to bullet-proof your business against an economic downturn originally appeared in MYOB blog.