While there is no silver bullet, there are some things you can do to manage your business through the difficult times and position it for future growth.

Perform a financial health check of your business

In tough times, you should regularly analyse the financial position of your business, because its financial position will determine whether the business remains viable and whether it is positioned for future growth.

You can get a lot of information on the financial health of your business (and hence about how your business is performing) by analysing your financial statements through financial ratios such as liquidity ratios, solvency ratios, profitability ratios, management ratios and return on investment ratios. 

Less formal indicators such as the value of daily sales, the value of next week’s pre-orders or the turnover of a key item of stock can also be indicative of how the business is performing.

You will get an indication of the financial health of the business when you compare these ratios and indicators with past ratios and indicators and with those of similar businesses in the same industry.  

Improve your cash flow

Typically in tough times, the most significant problem faced by many businesses is poor cash flow. Ideas to improve your cash flow include:

  • collecting outstanding debts
  • prepare regular cash flow forecasts
  • skew promotions to products and services that can be turned into cash quickly
  • measure and reward the behaviour of your employees that improves cash flow
  • make full use of your terms of trade
  • don’t let personal drawings from the business get out of hand 
  • reduce stock levels
  • replace slow-moving and obsolete stock with stock that has a faster turnover
  • sell unnecessary assets
  • seek finance on reasonable terms from external sources.

3. Improve or return your business to profitability

A profitable business is generally a successful business. Therefore it is important that while you improve the cash position of the business, you also aim to be profitable. Ideas to improve or return your business to profitability include:

  • prepare regular financial statements 
  • focus on sales that give you the highest margin
  • don’t discount on low margin products and services
  • don’t discount unless you can achieve the same or better gross profit through increased sales volume
  • control costs
  • be flexible with your staffing arrangements
  • don’t chase any sale; chase profitable sales.

Improve your access to finance

All businesses need finance to establish and grow. Finance can be provided from debt, equity and internal sources. Ideas for improving your chances of accessing finance include:

  • disclose all necessary information required by the bank
  • start to seek finance as soon as possible and shop around
  • be sensible about the amount you actually need to borrow and be able to justify it
  • take your time preparing the application as a well prepared business proposition is a good sign of a borrower’s commitment to a prospective lender
  • if you fail in your loan application, find out why.

Take stock of where your business is at

In tough times, you should adopt a risk management mindset and take stock of your business more broadly. You should therefore:

  • conduct research to find out if your customers and competitors are also experiencing tough times and if so, how are they responding
  • not starve your business of essential investment
  • review your business operations and look for improvements.

Revisit your marketing plan

In tough times, there is generally less money being available for marketing.  It is therefore important that your marketing plan is focused on achieving key objectives to get you through the tough times, particularly improving your cash position and profitability. Ideas for a marketing plan in tough times include:

  • focus on chasing sales that have a high margin and bring in the cash quickly
  • reward employees for sales of higher margin products and when payment is received
  • don’t discount unless it can lead to a better gross profit through increased sales volumes
  • measure the success of each promotional activity or campaign
  • focus on encouraging customers to pay at the point of purchase or to pay early
  • use in-store signs to highlight a special or high margin product

Adopt appropriate risk management strategies

Tough times may expose risks to the business, from internal and external sources, which were not previously apparent and which may threaten its viability. Such risks include:

  • relying too heavily on a small number of major customers
  • relying too heavily on one supplier
  • selling on credit
  • reduction in demand for your goods and services
  • fraud.

Be mindful of other commercial considerations

Other commercial issues to consider tough times include:

  • your terms of trade and other contractual issues imposed on customers
  • breaches of debt covenants, value of security and personal guarantees provided to secure finance
  • whether the asset protection steps taken by the business owner or director are effective
  • reducing the size of your workforce, or alternatives such as reducing hours

Take advantage of opportunities

Don’t turn a blind eye to opportunities that may emerge that:

  • are consistent with your strategic direction
  • can be properly funded.

If an opportunity does emerge, it may be necessary to adjust your business plan and budgets to accommodate it. In other words, in tough times you may have to drop activities from your business plan and re-focus your budget to take advantage of an opportunity.

Consider exiting your business

Most businesses will trade through the tough times, some with greater success than others. However, some businesses will not survive. There are several ways that a business can be wound up. Business owners guide providing strategies for exiting a business, including information about selling or passing on the business, merging, closing down the business, liquidating and forced closure.

For information on the consequences of insolvent trading, visit the Insolvency: a guide for directors from the Australian Securities and Investments Commission (ASIC) or your accountant or lawyer could explain the risks to you.