How do I recession-proof my business?

Shield Corporate Finance rides to the rescue with 5 Top Tips for making the most of a downturn

Unwelcome as a looming recession may be, it should spell long term success for businesses which embrace the opportunity to run a tighter ship in terms of basic management disciplines. Remember, your competitors are facing the same storm; what matters is that you come through it better than they do.

In these tougher times, Shield's Business Improvement tool kit is coming into its own as a recession-proofing programme for any company in any sector. What started life as a 6-12 month fitness regime for would-be sellers of businesses is now proving to be highly effective in building a business's "core stability"; in developing critical management muscles needed to fight recession and emerge more powerful than ever.

The priorities which emerge for recession-proofing a business are these:

Recession-proofing tip 1: Manage your cash flow mercilessly

Monitor it like a hawk, with 3 month rolling projections of daily cash balances, so you don't get caught out by intra-month troughs

Work your working capital harder:
- Beef up your collections
- Consider prompt payment discounts, or invoice factoring in one of the various forms now available (some very discreet)
- Stretch your creditors sensibly (if and when you have to)
The officers on the bridge need to know what's going on! Now is the time to install live monitoring of key performance indicators (KPI's), especially leading rather than trailing measures of performance (e.g. order intake, in addition to invoiced sales). So enhance your management dashboard and connect it to your accounting system

Recession-proofing tip 2: Critique your credit capacity

Model interest coverage and gearing ratios under various gloomy scenarios. Although your business may be carrying its current debt load comfortably right now, when will it start to splutter, if sales and profits decline and interest rates rise?
Don't bank on your bank to lend you more money when you need it; negotiate now for increased credit facilities, and find out where you stand before it's too late. The credit crunch has greatly increased your risk here
Line up family and friends, while the going is good
Sell non-core assets sooner rather than later, if you might need the cash
Raise external equity sooner rather than later, if you really can't do without it. Equity-raising gets increasingly expensive and difficult as recession bites

Recession-proofing tip 3: Sell smarter

Assess the vulnerability of your revenue streams to the downturn:
- Vulnerability of demand for various products
- Vulnerability of specific customers/receivables
Prune unprofitable and risky revenue streams
Take time to assess the creditworthiness of your potential customers before assuming the risk of large orders
Go for growth with your robust revenue streams, while your competitors retrench
Map your selling processes and manage your sales-people's time more aggressively
Sharpen up your Unique Selling Proposition (USP), use the human angle to exploit the sweet spots of your target audience, turn the fear of recession into your secret weapon and most importantly, make sure the whole sales team are 'on message'
Use your CRM system more effectively to target sales efforts to your most profitable customer groups. The Pareto Principle states that on average 80% of your profits are coming from just 20% of your customers. Use this information to your advantage

Recession-proofing tip 4: Market more efficiently

Track your "Cost of Customer Acquisition" and lead conversion rates for each source of leads you have. Cut out unprofitable advertising
Allocate marketing resources accordingly
This probably means "emphasise your e-marketing" and "sort out your SEO"
Take full advantage of free PR by sending out monthly press releases about your business to local newspapers and trade press
Incentivise your customers, friends, website visitors and other CRM contacts to make referrals to your business
Attend as many networking events as possible and hand out your business card as often as you can
Offer guarantees and use testimonials and case studies to instil confidence in your potential customers

Recession-proofing tip 5: Cut costs cleverly

Analyse your break-even point and plan to drive it down
Reduce fixed costs / increase out-sourcing
Make cuts consistent with the recession-proofed business plan, not blindly and across-the board
Increase the efficiency of your workforce by managing them with individual monthly meetings to review progress on Key Performance Indicators towards annual goals. Cull under-performers sooner rather than later
Make contingency plans and set triggers for successive cost-reduction initiatives, to prevent delay in implementation if the need arises