How businesses can beat the credit crisis

Posted by admin on 4 November, 2008 under Business advice, Business cash flow and planning, Businesses in Trouble, Cash flow problems, Credit crunch | Read the First Comment

The credit crisis is hitting businesses around the globe and at a time when you see World Governments pledging financial support for banks then you know that there is a REAL problem.

No one knows quite how long this crisis is going to last or indeed how bad things will get, but one thing is for sure confidence is a low, property prices are falling, properties are being repossessed and people are being made redundant.

With the picture painted and that part out of the way, I want to reassure my readers that I am not trying to reap doom and gloom here although a reality check is never a bad thing. When times are tough there are certain things that businesses can do to get through and this article is dedicated to that end.

Financial squeeze, relief on the way!

Once the Government funds and guarantees have found their way through the financial system, as the world leaders assure us they will, funds will begin to flow again and the all important business life-blood of CASH will once again be available. What is good news is that interest rates are falling around the world so lending will be cheaper and so long as your figures stack up then there is no reason why banks should not lend to you. The US have dropped rates again last week to 1% and we expect the UK’s Bank of England to follow suit this week, let’s hope the drop is a significant one and not just one quarter of a per cent!

What should small businesses do?

Every business, both large and small will have to revisit business plans, cash flows and budgets, but in particular their forward cashflow projections.

Businesses that are lucky enough to be selling the necessities of life are relatively well positioned at the current time, but even these will be hit to a certain degree and competition will be fierce. So you will still need to keep an eye on budgets and forecasts and on your operating costs. If however, you are a business operating in an industry that is at the whim of discretionary spending patterns, then you will be especially vulnerable right now.

Depending upon your business sector, the effect upon your sales will vary greatly. You might be lucky enough to have a business which benefits from a recession, for example, the low value supermarkets like Lidl are more likely to do well. They will be attracting new customers who are tightening belts and wishing to spend less. However, for the large majority of businesses there will be an effect and this effect needs to be both managed and planned for.

So preparing revised cash flow forecasts and doing a number of “What if” scenarios on varying drops in sales volume is a must. So for example, you might want to see the impact on your business of a 10%, 20% and even a 30% drop might have on the “Bottom Line”. You can then make contingency plans for each of these eventualities and aside from tightening spending budgets, you may find that you will need to visit the redundancy scenario.

Alternatively, you might be able to do some re-structuring within the business and seek additional bank finance to help the business through the following months. Banks like to see businesses plan ahead and if you present to them a well prepared business plan which includes professional cash and profit forecasts, you are more likely to have the bank on your side. Banks do not like last-minute fire fighting scenarios, as this creates “Risk” and does not attract confidence in your business model.

This is a time to look at diversification and for a bit of thinking outside of the box. In other words, if your core business has taken a hit and by increasing your marketing spend does not have enough of an impact, then you should consider adding product/service lines to your range of products and services.