The golden triangle when recession looms
Updated: Jul 30, 2020
The Coronavirus pandemic has impacted upon the economy and will do for some time to come. The Chancellors announcement this week on VAT relaxations and incentives to take on apprentices are designed as part of the package to stimulate the economy. But government interventions are only part of what a business must consider as the first spike of the virus is brought under control and the impact is assessed.
Business owners and leaders must make decisions. Set against a backdrop that recovery of the economy is going to be based upon people’s health, and confidence to interact, the decisions they are going to have to make are not going to be easily quantified.
Specialist advisors can be used for marketing, debt collection and managing the staff numbers but it’s the business owner who has to make the decision as to which specialist to use if they need help and it’s the business owner who has to tell the specialist what they require doing or to be advised upon.
Making sense of this can be daunting if you have not made such decisions before and businesses which were set up in the last recession will have only known a generally rising economy. So, the current times will be uncharted territory.
If you consider three underpinning business basics, Sales or new orders, Cash and People, then other details can be addressed once there is a plan for these. The easiest place to start is with your expected pipeline given the “new normal”. The extent to how much you are impacted will depend on all manner of things. You have got to make a call, what sales are you certain about, and what upside could there be? This is a judgement call and you may need to set some milestones in the future when you re-evaluate this step if significant sales do not occur as anticipated.
The anticipated sales pipeline is the raw data for the next decision. The next decision is to get the costs in balance with the expected income. If the income is expected to fall, costs have got to be saved. The sad truth is, that it usually means that there will be cuts in staff numbers. Other things people cut is training, marketing, investment in equipment. These are generally not wise things to cut as you either run out of sales or will become less productive. Ideally, addressing the headcount will usually deal with the cost issue. Aim to continue investing in the staff who remain. Cutting costs is only part of the issue, credit control should be reviewed, and any issues addressed without delay. Promptly dealing with controlling the costs and credit control will keep cash at a level where the business will be able to pay its bills and remain solvent.
When lockdown was being muted, I reviewed the situation with several of my clients and helped make the difficult decisions to save costs. Three months on, we have inserted the savings back into the accounts to see what would have happened had we not acted promptly. The result is not very pleasant. There will be a lot of businesses out there where they have not acted, and over the next few months they will run out of cash, leaving others out of pocket.
Having got the business in balance financially, the next step is to invest in marketing and secure new sales. The temptation will be to drop prices, but this will only reduce cash income, at best lowering profit, at worst causing the business to fail. So, with the marketing, review the pricing and aim to achieve the highest price you can by constantly benchmarking your prices against the market.
Finally, the three underpinning principles of business, marketing & sales, cash control and the staffing, should always be at the forefront of a business owners mind, but when times are good, as they have been, complacency sets in. If you have not reviewed these three golden principles recently, I urge you to do so, and if you have staff on the job retention schemes, now is the time to decide if the business can afford them when it finishes.
If you would like a sounding board about your strategies, especially as we go into the next difficult stage of “suicide tendering”, please get in touch.
More about the author https://www.linkedin.com/in/peter-searle-a75a993/
Other blogs in the Golden Triangle series: