"Ne'er cast yer clout till May be out!"

An old English proverb, in respect to not throwing off your winter coat till May is finished. I believe this phrase can be applied to represent businesses today too (May 2021). 

I.e. not rushing out and grabbing every business opportunity we see and not saying "YES" to every customer whim and request.

As we move forward, there will be many challenges ahead for businesses and now's the time to be vigilant, rather than throw caution to the wind. Particularity as we come out of a long hard winter and the most turbulent trading period most of us will have ever experienced during 2020. We might be keen to get back out doing what we do well but please, "don't cast off your coat off too early, you/your business might just catch a bad cold"

Historically there are more businesses that fail coming out of a recession than going into a downturn and your business does not want to be part of those statistics. Further on in this blog I share 3 key areas a business leader needs to focus on.

But first on the above statement in bold, why do we see more failures post-recession?

As Warren Buffet famously said; 

"It's only when the tide goes out do you discover who's been swimming naked".

During the good years, successful businesses often grow arms and legs, diversify and over commit to debt, expenditure and resources usually increasing staff numbers too. However being busy they don't have the time to review and operate more efficiently. Ultimately costs just get out of control, turnover goes up but profits do not feed through to the bottom line, and in some cases profitability drops as a % of sales.

Have you experienced this within your business? What did you or have you done differently based on your learning?

Do not become "Busy fools".

Companies that seem profitable in the good times, are in fact relying solely on constant economic growth to hide weaknesses in their trading model and operationally too.

Then when a downturn arrives, they ultimately look inwards and focus on survival. They panic, cut costs and reduce staff numbers and do not necessarily make the right decisions for the longer term.

Then when things start to show they are picking up again, these businesses panic again, access any grants that are available, extend borrowing from lenders and increase expenditure to resource up. What with extra staff, increasing and taking on new stock lines, invest in facilities and equipment, with the expectation of a boom and steep upturn in trade.

However, there is always a lag between expenditure (cash out) and then generating enough business to create enough surplus cash, (once you have paid your costs and expenses), to pay back those loans and pay creditors too. Ultimately post-recession, many businesses just end up over-trading and go out of business. In simple terms they basically run out of cash.

So, know your numbers, manage customer's expectations and do keep control on your businesses costs.

3 key areas within your business that you need to manage and control. (please read on).

1. Cash (is King)

Ensure you manage your cash reserves and cash facilities vigilantly and keep on top of this task daily.

Set yourself an objective to have a minimum buffer in cash held within the business. Ideally, at least 3 months, but more if you can, of trading expenses including wages and keep these funds in a separate account to your current day to day bank account facility. If you can continue to top up this rainy-day fund, do so, and prior to your financial year-end you can always decide how best to use these cash surpluses in a tax efficient manner. (Do obtain advice from your accountant or tax advisor)

Ensure you keep in close communication with your bank and lenders too as they will be looking for regular updates on trading and for any signs of risk in their investment in your business. 

Plus keep on top of debtors, even when you're busy, plan time in the diary regularly to carry out this task to ensure you mitigate any risks from customers who purchase on credit terms. They may well have cash difficulties themselves and going through similar head winds and challenges to your business. Also have regular open conversations, building relationships with your suppliers as they can be flexible should you need a period of grace to pay your bills.

2. Mange customer's expectations. (I believe the pent-up demand could be short lived, 3 months at most, so  plan for downturns too.)

I am sure you have read in the recent press, online or heard there is many private individuals, families along with businesses which are sat on higher bank balances and cash reserves.

Office for National Statistics state that "There was a £186.1 billion increase in currency and deposits held by households in 2020, reflecting the record increase in the households saving ratio as the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS) cushioned the fall in household income".

However, The Bank of England predict (May 21) only 10% of these cash surpluses will be spent in the next few months, as the public and businesses will continue to be cautious until there is further insight into the development and ongoing management of Covid in the future months and years ahead.

What is does this inform us?

Yes, there may be a rush to go out during the summer months to visit friends, family, along with treating and enjoying ourselves but once the euphoria is over, September onwards, people will likely track back to the comfort of their own homes. So, potentially we're not likely returning to any normal continuous levels of trading in the foreseeable future and as a business you need to be able to foresee and manage the peaks and troughs. Different sectors in industry will also have varying issues to deal with. Key success would be through working and planning on an average trading level of say 80% of the past normal for at least the next 9-12 months. You may have lot's of forward bookings and a healthy order book, but I guess you have also seen the news in recent weeks how many people do not turn up for restaurant bookings and are canceling orders due to delays.

3. Managing the costs, productivity of staff and the effective return on your business.

This is the hard bit and something you and your team will need to monitor, plan and allocate time to work on daily as it will be fluid and likely evolve week to week. But get this part right and this will fundamentally assist you and the business come out the other side a much stronger organisation.

Again, it is ensuring you don't become "busy fools" being selective with who and what you say yes too and at what price and margin level. Don't take too much work on, or chase what are deemed as new opportunities to realise a few month down the road that it was not profitable or a worthwhile exercise.

If you predict an upturn in trade and need to resource up, spend wisely and manage your cash flow. If you can rent equipment, vehicles and facilities, short term, do so, rather than impulse buying at overinflated prices. With rental you can obviously return the goods as and when, subject to contract terms.

Wages will continue to be your highest business expense. So again, consult and discuss with managers and staff, flexible working patterns and shifts whereby you can utilise your employees available hours that best fit the businesses and customer's needs and demands. Monitor and measure any idle non-productive time as this can drastically undermine margins and profitability, particularly if you are also having to pay overtime during busy periods. Consider using freelancers, agency workers for those busy overspill periods or non-core specialist tasks, as whilst more costly, these human resources are flexible. It's also good professional practice to discuss any proposed working hours and employee changes with a HR specialist too.

Mange Stock, materials effectively. No doubt you will noticed most items have jumped and gone up in price. In the construction sector, material prices have gone up between +5 to +20% year on year. Therefore, you will have to not only budget ahead, but also plan forward purchases with your suppliers as many goods have longer lead times than previously. You would not want to get caught out or fail to meet delivery and any previously signed customer service level agreements (SLAs). Supply chains are going to be stretched for a good while. 

"We are not out of the woods yet".

There's still a lot to do over the next few months and it won't be plain sailing. You and your senior team will need to spend time working "ON" the business. Key is taking it step by step, keeping track on demand, expenses and utilisating your resources and adapting to the times ahead to ensure you and the business survive what is likely to be a demanding commercial trading period for many organisations.

Note; you are not on your own, most businesses are going through a similar experience and there's a lot of professional business and commercial support out there, so please don't just procrastinate or ruminate.

Reach out and we will all get through this together.

If you need some assistance or wish to share and discuss your business challenges and concerns, please do just get in touch. I am more than willing to give an hour of my time as part of an initial free consultation and please note there no obligation to take anything forward on a commercial basis.

My contact details are below.

Email; This email address is being protected from spambots. You need JavaScript enabled to view it.  Mobile; 07966 686112