10 Things a Business Can Do When a Recession Ends

In the first year or so after the Irish economy has turned the corner, there is likely to be an increase in the number of businesses failing.  That unfortunate prediction arises because businesses are likely to run into cash flow problems as they start to build up their stocks to finance higher sales and wait to be paid for the sales which they have already made.

Consider the following:

• Do not try to increase your turnover significantly unless you have adequate bank facilities in place.  At the first sign of an increase in orders, speak to your bank and see whether they are willing to finance higher levels of stock and debtors.  If not, and you cannot find some other form of short term finance (you might perhaps consider factoring), do not expand.

• Assuming you have the finance in place, be careful to whom you sell.  Many businesses fail in the early months of an upturn; if any of those are your customers, you will incur bad debts and you will be worse off than if you had never made the sales in the first place.So review credit limits for existing customers, carry out plenty of checks on new customers and make sure that customers whose accounts are overdue are chased regularly.  Do not be afraid to cut off supplies to a customer who has not paid for what he has bought from you already. There is little point in continuing to make sales for which you may not get paid.

• Draw up cash flow plans based on different levels of future sales so that you can see what the implications are.

• Be careful about incurring new expenditure.  It may well be worth paying comparatively high charges on a short term lease of a piece of plant if you can cancel the lease quite quickly should you need to do so.

• Keep staff levels low.  Outsource as much as you can.  Take on staff on a temporary basis rather than putting them on your payroll.  If you run into cash flow problems, you can dispense with temps or outsourced services quite easily.  That may not be the case with permanent members of staff.

• Do not be tempted to buy expensive plant (unless you were going to buy it anyway) for the tax allowances on plant and machinery.  After two or three years of recession you probably have “tax losses” available.  If you do, you may not have to pay any tax for a year or two anyway so that the benefit of the tax allowances could be two or three years down the line. Even if you do not have any tax losses available you will not get any cash flow relief until nine months after your year end – so you could wait for up to 21 months for this “benefit” if you are trading as a limited company.

• Monitor your order book, your sales and your debtors on a weekly basis.  Do the same for your stock levels, your purchases, your creditors and your bank balance. Indentify your KPIs. Keep a regularly updated detailed short term cash flow projection covering the next three or four months on the top of your desk.  This is all the information you need on a month to month basis.  Cash is king.

• Review your payroll costs on a weekly or monthly basis when you sign the payroll cheque.  They are unlikely to vary much apart from overtime or commission costs.

• Most businesses do not need to prepare full Financial Statements more than once a quarter.  All you need on a weekly/monthly basis is the information noted above so ask your accounts team to do something more beneficial, such as collecting outstanding debts.

• Finally, and only after you have dealt with these points, draw up a three/five year business plan to deal with your company’s long term investment growth.

.

Related Article:           10 Ways to Increase Your Profit

Please call Noel Murphy today on 021-4310266 if you need further information on what a business can do when a recession ends or for a free consultation.