Wednesday, August 10, 2011

Make Your Business Recession-Proof

The business trend will never be the same all throughout. There will be times when businesses will do well. However, there will also be times when businesses will have tough moments. Among these tough ones is the time of recession.

At present, it is the Western world that is experiencing this pinch. However, individuals have to be cautious this early as this recession will eventually flow out into the Australian economy and to individual businesses.

What is important during this time is that business owners have to make sure that not all revenue comes from one source. That is, if 80 per cent of a business’ revenue is just from one client, the risk when this client goes away is very high for the business. It may also not be very wise to diversify just yet.

Instead of expanding or growing the business, it may be wise to just prepare for the rough times that are coming. Here are among the things to do to recession-proof one’s business:

1. Build a cash flow buffer

Cash flow is very important. Eventhough a business has much cash to use, it may be wise to make a cash buffer of at least 3 months overheads. This will protect the company and spare the owner from unwanted stresses brought about by market volatility.

2. Bring forward receipts and defer payments

It is important to convince clients to prepay. This may be done by implementing discounts, credit facility, and retainer.

3. Reduce debt exposure

It is important to consolidate debts to see how much needs to be repaid. In this case, if the interest rates are higher, the debt finance will also be more expensive.

4. Migrate from fixed to variable costs

It will help to reduce overhead costs in absolute terms and to migrate from fixed to variable costs. For example, contract labor is cheaper than maintain everyone in the payroll.

5. Manage employment leave exposure

It will be necessary to convince employees with chunks of leave entitlements to just use these instead of letting the business give out a lump sum.

Decision cycles may have to be shortened. From using the monthly or bi-monthly system, a shift to weekly will be more helpful. This is also considered to be among the important and efficient moves when it comes to cash flow management.

Source: - How to recession-proof your business »

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