Planning in an Economic Downturn
As concerns over the UK economy continue to grow, it is essential that all businesses, particularly small and medium-sized enterprises, are property prepared for financially-testing times. Sound business and financial planning is always important, but especially so in an economic downturn.
The following steps can help you and your firm weather the ‘credit-crunch’ storm; but remember, there is no substitute for one-to one professional advice, so contact your accountant to give your business the best possible chance of success.
This is essential in an economic slowdown -you will soon encounter difficulties if you allow outstanding debts to accumulate, a problem which is all the more likely in lean times. Make sure you have a clear policy for collecting debts and that customers are aware of it. Above all, ensure you enforce it. Pursue outstanding debts with letters and telephone calls and ensure that your terms of business allow for adding interest on overdue accounts. (See Credit Control for further information)
Maintain Customer Loyalty
In difficult times it becomes harder to attract new customers. Therefore, it is more important than ever to maintain customer loyalty amongst your existing ones. Consider ways of developing and rewarding customer loyalty, such as selected discounts (especially for early payment), regular mailings or loyalty cards.
Beware of Cutting Prices
If receipts begin to taper off, it can be tempting to cut prices. But this can be a mistake. In a recession your costs will inflate and as a result you may be forced to raise prices to cover this expenditure. Cutting prices can also have the negative long-term effect of devaluing your image in the marketplace. Remember that suppliers might raise their prices as well, so try to negotiate a long term discount with them and read our article on how to price your product or service.
Don’t Skimp on Marketing
The marketing budget is often the first casualty in a recession, but smart businesses continue to market through a downturn and position themselves to take full advantage of the upturn as soon as it starts. In tough times the marketplace becomes more competitive – you may need to market more vigorously, not less. If you do not have a strategic marketing plan, now is the time to draw one up.
Look After your Employees
While job cuts may be necessary in some circumstances, you should always try to retain your key employees: their strengths will help you through an economic downturn, and you will need them when business picks up. You should use any dips in the market as an opportunity for key staff to develop new skills and coach newer members.
Planning is vital for the success of your business. You need to plan the changes that can strengthen your enterprise against tough times, and how those changes will be put into action. However, planning is not just about ‘worse case scenarios’ – your accountant can work with you to plan for your business future, offering advice on business management and tax planning and personal financial planning.