The Sensex is down to half of what it was six months back. The world’s top investment banks no longer exist, and the US and European governments are rolling out the mother of all financial rescue packages. So, how are you affected? Unless you are in the export or BPO businesses, the slowdown may not yet have manifested in loss of business.
What will first become obvious is delayed payments and delays in signing new deals.
As I write this, the full impact of the financial meltdown is yet to reveal itself, particularly in India. Is it just a a slowdown? Is it a recession? Is the worst over, or will there be further shocks? All these questions are still up in the air. Clearly, we have not seen the end of this. We will have to wait for the next cycle or two of corporate results to assess the full extent of the situation. Meanwhile, how does one tide over these uncertain times? We have put together a list of things to do and to keep a close watch on. Reducing costs is, of course, the most obvious — so much so that it does not merit a mention as a separate item. The question is, where does one reduce costs and how does one go about it? This is what we shall answer in some detail in the following pages.
1. Reassess your business plan
The first thing to do is to completely reassess your businesses plan to figure out where and by how much you will be impacted. Figure out which input costs have gone up and by how much. Which are the target markets in turmoil? How are your key clients affected? By how much will their order position be affected?
Even if you have just finished wrapping up your half-yearly budgets, recast them if you expect dramatic changes. It is absolutely imperative that you understand the extent of impact the current scenario is going to have on your business.
2. Become cash flow and cash positive
With banks freezing working capital loans and lines of credit, it important to manage your cash flow tightly. For this, you first need to have a clear assessment of your potential cash flows. If there are negatives in the monthly cash flow, how do you make it positive? Is there any money you can collect a little faster to improve cash flow during bad months? Which payments can you defer or delay? Which are the clients you need to watch closely in order to ensure that there are no nasty surprises by the month end?
Add potential investors turning coy to banks freezing credit, and you can be out in the deep end if you are a startup or are bleeding. Therefore, an added question is, how fast can you turn cash positive? Do all that you can to turn positive as fast as you can. Here I am talking about operational income and expenses, and not profits, which take into consideration things like depreciation.
3. Manage key clients
Most businesses follow the 80/20 rule when it comes to their clients. Eighty percent of your revenues will come from 20 percent of your clients. Identify this 20 percent. How healthy are they now? Reassess their ability to pay on time. Take them into confidence. Can you help them a bit more in these troubled times without hurting yourselves? Is there some way your business can help them reduce costs and reach markets faster? Can you find a new use for their products or services? In short, do everything you can to not only retain them, but also increase business from them, as getting a new big client is not going to be as easy. On the other hand, ensure that you are amongst the first to know if they are in trouble.
4. Identify expenditure that can be deferred
Identify all non productive and long-gestation-period expenditure, and see which can be deferred. Non-productive expenditure start with small ones like redecorating the office. Capital investments include purchase of new offices or land, setting up new factories, plant and machinery, and so on. Decisions on which capital expenditure is to be deferred will flow from a revised business plan. Another set of capital expenditure that can be deferred is the purchase of computers , which we discuss separately.
5. Convert capital expenditure to monthly payouts: Lease
There are capital items that cannot be deferred as expenditure that is critical to the continuation of business. Can you convert at least some of the new capital expenditure into a monthly payout by going the lease route? Almost everything from plant and machinery to office space to computers to cars and software can be leased today. Using the lease route does away with the need for lumpsum payouts and to that extent reduces the drain on your cash flows, as well as the need to organize new loans. There are organizations that will help you lease anything and everything, and there are those that specialize in specific items.
General purpose leasing firms tend to look only at providing the cash flow for your equipment, while the specialists also take care of maintaining and managing equipment. To give a casual example, India Leasing will organize the finances for purchasing, say, printers and cars, which you have to separately own and maintain, while Black Magic Toners will lease manage and maintain printers, while Leaseplan will do the same with cars.
Have you considered a sale and leaseback option for assets you already own, where you sell these assets to a leasing company and then lease it back yourselves? This will release some cash for short-term needs.
6. Barter
This is something that most businesses do not consider. There is a healthy ecosystem out there for bartering goods and services. You can offer an exchange for goods and services you produce for those you need, including advertisement space. Thus, when you cut down your advertising budget, you can still get advertising space by offering to barter.
Net4barter and Tradex are organisations that will organize a barter for you for a fee. Craigslist, LinkedIn, and other social networking sites are also good places to get barters going.
7. Collect smarter
There is something that one tends to forget in the hurry. With payment schedules being stretched, you will obviously put a lot of focus behind overdue payments. But what about
advances? What about collecting some of the dues before they actually become payable?
One of the techniques that I saw being used during the dotcom slowdown was to offer discounts for payments made in advance and for collections done before due date. Such discount offers made to selected clients or even on selective deals could help in managing during critical cash flow situations.
8. Leverage the Web and mobile
One of the first items you will cut (or defer, if that is the term you prefer) from your budgets will be advertising expenditure. When the total available budget is reduced, you should also take a fresh look at your media mix. And you should take a long hard look at Web-based advertising options.
You may already be doing click-through advertising on Websites. Have you considered leveraging social networks for recruiting employees as well as customers? Have you looked at blogs? What about setting up employee blogs to improve customer touch points (and reduce costs for reaching out to the customer)?
SMS in bulk can be very cheap. Have you considered that as a response mechanism in place of printed letters and phone calls? Have a new deal to advertise? What about using SMS and email to get the word out? Somewhere inside your organization there is a treasure trove of email IDs and cellphone numbers. They are there in visiting card holders, in customer feedback forms, in registration and warranty cards, in emails and printed letters that customers send you, in your investor database, and so on. If you have not done it yet, now is a good time to get all of them organized and put to use.
Soruce: http://www.dare.co.in/strategy/business-essentials/25-tips-to-manage-through-the-slowdown.htm
What will first become obvious is delayed payments and delays in signing new deals.
As I write this, the full impact of the financial meltdown is yet to reveal itself, particularly in India. Is it just a a slowdown? Is it a recession? Is the worst over, or will there be further shocks? All these questions are still up in the air. Clearly, we have not seen the end of this. We will have to wait for the next cycle or two of corporate results to assess the full extent of the situation. Meanwhile, how does one tide over these uncertain times? We have put together a list of things to do and to keep a close watch on. Reducing costs is, of course, the most obvious — so much so that it does not merit a mention as a separate item. The question is, where does one reduce costs and how does one go about it? This is what we shall answer in some detail in the following pages.
1. Reassess your business plan
The first thing to do is to completely reassess your businesses plan to figure out where and by how much you will be impacted. Figure out which input costs have gone up and by how much. Which are the target markets in turmoil? How are your key clients affected? By how much will their order position be affected?
Even if you have just finished wrapping up your half-yearly budgets, recast them if you expect dramatic changes. It is absolutely imperative that you understand the extent of impact the current scenario is going to have on your business.
2. Become cash flow and cash positive
With banks freezing working capital loans and lines of credit, it important to manage your cash flow tightly. For this, you first need to have a clear assessment of your potential cash flows. If there are negatives in the monthly cash flow, how do you make it positive? Is there any money you can collect a little faster to improve cash flow during bad months? Which payments can you defer or delay? Which are the clients you need to watch closely in order to ensure that there are no nasty surprises by the month end?
Add potential investors turning coy to banks freezing credit, and you can be out in the deep end if you are a startup or are bleeding. Therefore, an added question is, how fast can you turn cash positive? Do all that you can to turn positive as fast as you can. Here I am talking about operational income and expenses, and not profits, which take into consideration things like depreciation.
3. Manage key clients
Most businesses follow the 80/20 rule when it comes to their clients. Eighty percent of your revenues will come from 20 percent of your clients. Identify this 20 percent. How healthy are they now? Reassess their ability to pay on time. Take them into confidence. Can you help them a bit more in these troubled times without hurting yourselves? Is there some way your business can help them reduce costs and reach markets faster? Can you find a new use for their products or services? In short, do everything you can to not only retain them, but also increase business from them, as getting a new big client is not going to be as easy. On the other hand, ensure that you are amongst the first to know if they are in trouble.
4. Identify expenditure that can be deferred
Identify all non productive and long-gestation-period expenditure, and see which can be deferred. Non-productive expenditure start with small ones like redecorating the office. Capital investments include purchase of new offices or land, setting up new factories, plant and machinery, and so on. Decisions on which capital expenditure is to be deferred will flow from a revised business plan. Another set of capital expenditure that can be deferred is the purchase of computers , which we discuss separately.
5. Convert capital expenditure to monthly payouts: Lease
There are capital items that cannot be deferred as expenditure that is critical to the continuation of business. Can you convert at least some of the new capital expenditure into a monthly payout by going the lease route? Almost everything from plant and machinery to office space to computers to cars and software can be leased today. Using the lease route does away with the need for lumpsum payouts and to that extent reduces the drain on your cash flows, as well as the need to organize new loans. There are organizations that will help you lease anything and everything, and there are those that specialize in specific items.
General purpose leasing firms tend to look only at providing the cash flow for your equipment, while the specialists also take care of maintaining and managing equipment. To give a casual example, India Leasing will organize the finances for purchasing, say, printers and cars, which you have to separately own and maintain, while Black Magic Toners will lease manage and maintain printers, while Leaseplan will do the same with cars.
Have you considered a sale and leaseback option for assets you already own, where you sell these assets to a leasing company and then lease it back yourselves? This will release some cash for short-term needs.
6. Barter
This is something that most businesses do not consider. There is a healthy ecosystem out there for bartering goods and services. You can offer an exchange for goods and services you produce for those you need, including advertisement space. Thus, when you cut down your advertising budget, you can still get advertising space by offering to barter.
Net4barter and Tradex are organisations that will organize a barter for you for a fee. Craigslist, LinkedIn, and other social networking sites are also good places to get barters going.
7. Collect smarter
There is something that one tends to forget in the hurry. With payment schedules being stretched, you will obviously put a lot of focus behind overdue payments. But what about
advances? What about collecting some of the dues before they actually become payable?
One of the techniques that I saw being used during the dotcom slowdown was to offer discounts for payments made in advance and for collections done before due date. Such discount offers made to selected clients or even on selective deals could help in managing during critical cash flow situations.
8. Leverage the Web and mobile
One of the first items you will cut (or defer, if that is the term you prefer) from your budgets will be advertising expenditure. When the total available budget is reduced, you should also take a fresh look at your media mix. And you should take a long hard look at Web-based advertising options.
You may already be doing click-through advertising on Websites. Have you considered leveraging social networks for recruiting employees as well as customers? Have you looked at blogs? What about setting up employee blogs to improve customer touch points (and reduce costs for reaching out to the customer)?
SMS in bulk can be very cheap. Have you considered that as a response mechanism in place of printed letters and phone calls? Have a new deal to advertise? What about using SMS and email to get the word out? Somewhere inside your organization there is a treasure trove of email IDs and cellphone numbers. They are there in visiting card holders, in customer feedback forms, in registration and warranty cards, in emails and printed letters that customers send you, in your investor database, and so on. If you have not done it yet, now is a good time to get all of them organized and put to use.
Soruce: http://www.dare.co.in/strategy/business-essentials/25-tips-to-manage-through-the-slowdown.htm
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