Monthly Archives: July 2016

Steps to recession proof your business

There is a lot of uncertainty at the moment (May 6, 2008) with much talk in the media of an ‘impending economic downturn’. While the phrase ‘recession’ seems to be close to many people’s lips, it is being muttered in hushed tones rather than being shouted from the rafters. In the U.S. they are ‘not in a recession’ according to the U.S. Commerce Department[1] (April 30th), in an ‘awfully pale recession’ according to Alan Greenspan[2] (May 5th) and in a ‘recession’ as Warren Buffett[3] defines it (May 5th). For now, in the U.K., at the very least, we are experiencing a downturn/slowdown/worsening of economic conditions. (You can take your pick as to which euphemism is most applicable.) Regardless of the word play, one thing is clear; many economic indicators are predicting flat or negative growth for the next year.

The Context

What is clear in the U.K. is that there have been significant increases in recent months in the costs of staple foods, oil, oil derivative products, and those services heavily reliant on oil, such as transport and heating. All of this change has resulted in higher business costs, a greater cost burden on the average consumer and reduced disposable income. Add the ‘credit crunch’ to the mix and it is clear that the economic conditions are going to be a lot tougher in the months to come.

So what does all of this mean? The bottom line is it will mean less money in people’s pockets and less access to credit as banks tighten their belts. Given the above, it seems prudent to consider some actions that will help ensure that your business is able to adapt quickly to less favourable economic conditions if and when they ever do arrive!

How vulnerable is your business?

The first thing to consider is how ‘recession-proof’ your business is.

Is your product generally considered a ‘necessity’ or a ‘luxury’? Is your product a ‘staple good’? In pure economic terms, ‘staple goods’ tend to be those where demand stays relatively constant even as price increases; for example, cereal-based products such as bread, available year-round, are staples. Understanding the nature of your product and who consumes it will give you a better feel for the likely future demand for it.

If your company is business-to-business (B2B), you need to consider how the wider economic changes are likely to impact the demand for your products or services. It is also worth analysing your current customer base. Are you over-reliant on a small number of customers? If yes, consider how best to diversify your customer base. If your product portfolio is too narrow, seek ways to increase internal innovation so you can diversify your income streams in the short term.

All of this analysis will allow you to better understand your particular vulnerabilities and help you to craft strategies to reduce the impact if a full-blown recession kicks in.

Revisit your sales forecast

As you’ll gather from the above, it is necessary to revisit your business plan (in particular the sales forecast) to reappraise the core fundamentals. When people draw up a sales forecast, they are typically basing their figures on the economic conditions of the time. As these conditions change, the assumptions on which the sales forecast was based will have changed. Hence, assuming your business plan was written six months or a year ago, it is necessary to revisit the sales forecast and to reassess the figures, probably downgrading sales predictions in the light of the changing circumstances. You will need to analyse your projected sales and assess the likely affect a recession would have on them. Perhaps you draw up a number of scenarios. Once you have done so you will have a better feel for plausible outcomes in the year ahead. The revised business plan will also help you identify some other areas in need of immediate focus: cost base, proposed marketing spend, resource deployment, etc.

Credit control

Alongside the risk of reduced sales numbers, credit management tends to be the next biggest issue during recessions: debtors take longer to pay, or worse, some debtors go out of business. Hence it is prudent to reassess your cash position. If you have a high percentage of sales on credit you will need to reconsider the payment terms, ensure you invoice immediately and maintain contact with those who owe you a lot of money. There is no need to panic; it is simply opportune to revisit all elements of your credit control system from invoicing, to bank overdraft facilities, to the debt collection process you have in place, to make sure that you are on top of your cash flow.

Run down stock

As you redo your business plan, take time to review your stock position. You may want to ‘restructure’ your balance sheet, to reduce assets consisting of stock and debtors (accounts receivable) and increase cash/bank reserves.

Every cloud has a silver lining

It is also worth remembering that every cloud has a silver lining, and that how you behave will significantly impact your chances of riding out the recession. For example, you may pick up better advertising rates as other businesses slash advertising budgets. For instance, Michael O’Leary of Ryanair claimed he “would welcome an economic slowdown across the continent that would make consumers more cost conscious and therefore choose Ryanair.“[4] The bottom line here is to remember that a recession does not need to be all doom and gloom and that careful planningcan help you mitigate against some of the key issues that can impact your business.

How to Write a Business Plan

So, you have decided to start up a new business. You begin to do some research and find that almost everything you read recommends that you produce a business plan. Why is this so? Because the benefits of compiling a business plan are numerous – not least, the fact that committing your thoughts to paper dramatically improves your prospect of getting started in the first place. A business plan also helps you gain a holistic view of the business and helps you to devise a strategy to ensure a successful launch for your idea.

Having decided to produce a business plan, there are three main ways to write one:

1. Pay someone to write it.

2. Write it yourself using Microsoft® Word and Excel.

3. Write it using a task-specific software product such as Business Plan Pro UK Edition.

If you, like many entrepreneurs, are time rich and cash poor, option 1 quickly removes itself from the equation, given the cost of having someone write a plan for you.

You are then faced with the choice between using Business Plan Pro or building everything yourself, from scratch, in Microsoft Word and Excel. Why are we not recommending other business plan software options? Because Business Plan Pro is the best business planning software available – without exception. Palo Alto Software (the maker of Business Plan Pro) has a proud history, has had category leadership for years and has extensive lists of testimonials and independent reviews on the website, all corroborating this view. By all means, consider other software options; however, we are confident that your own analysis will reveal that Business Plan Pro stands head and shoulders above the alternatives.

When it comes to using Word and Excel there are undoubted benefits – not least the fact that they are ‘free’ in the sense that they are bundled on most PCs. The interface is also familiar, given the popularity of their use. However, while these tools are excellent when you know exactly what you need to produce, they offer negligible assistance when it comes to producing specific content, such as that required for a business plan. If the purpose of the business plan were simply to jot down a few notes to keep you on track, they would suffice. However, if you intend to circulate the plan to peers, colleagues or prospective investors, you will need to produce a plan worthy of your name. After all, you are the author!

Here are the reasons why we believe that using Business Plan Pro is the easiest way to write a business plan:

1. Offers significant time saving

Business Plan Pro was designed to help you write a plan as efficiently as possible. It comes with extensive help, lots of examples and expert advice.

2. Provides the structure

Business Plan Pro walks you through a list of specific tasks, step by step, in stark contrast to the blank screen and flashing cursor you face when you create a new document in Microsoft Word.

3. Includes hundreds of examples

Business Plan Pro includes over 500 sample plans so you can browse plenty of examples to help give you ideas.

4. Ensures you do not leave out any sections

Over ten years of history means that we know what sections to include, where they should appear in the document and what you need to put in them.

5. Makes the numbers part easy

We recognise that while compiling the financials is an essential part of any plan, it is a very challenging area. We have simplified this process with the inclusion of easy-to-use financial wizards and automatic calculations, linking together all the financials from Start-up costs to Sales Forecast to Personnel Expenses to Cash Flow to Profit and Loss.