Driv­ing a busi­ness from good to great by Roger Men­del­son

It’s been al­most 25 years since Aus­tralia last ex­pe­ri­enced an eco­nomic re­ces­sion. Since that time, a whole gen­er­a­tion of busi­ness lead­ers have risen through the ranks, only to ex­pe­ri­ence eco­nomic growth writes Roger Men­del­son.

Business First - - CONTENTS - Roger Men­del­son is CEO of Prushka Fast Debt Re­cov­ery and prin­ci­pal of Men­del­sons Na­tional Debt Col­lec­tion Lawyers. Roger is also au­thor of The Ten Mis­takes Busi­nesses Make and How to Avoid Them and Busi­ness Sur­vival Guide, both pub­lished by New Hol­land Pu

Re­ces­sions, by their very na­ture, are un­pre­dictable. There has been much spec­u­la­tion from com­men­ta­tors in re­cent months pre­dict­ing a re­ces­sion, but in re­al­ity, only few can ac­cu­rately pre­dict when one will hit.

If one is fore­cast, so­ci­ety as a whole pre­pares for the im­pact, and as a re­sult the ef­fect is typ­i­cally less se­vere or can be avoided all to­gether. For ex­am­ple, Aus­tralia and the 2008 Global Fi­nan­cial Cri­sis in which the govern­ment at the time pre-empted the im­pend­ing dis­as­ter and man­aged to steer us through it rel­a­tively un­scathed.

I’m cer­tainly not pre­dict­ing a re­ces­sion but, given cur­rent eco­nomic con­di­tions, it is wise for busi­ness own­ers to be pre­pared and know what to ex­pect should one hit. What does a re­ces­sion look like? In­vari­ably a whole lot of bad things hap­pen al­most si­mul­ta­ne­ously, re­gard­less of what trig­gers them.

Once a re­ces­sion men­tal­ity sets in busi­nesses tend to re­spond swiftly, mov­ing into sur­vival mode and shift­ing fo­cus away from long-term growth. As a sig­nif­i­cant ex­pense in ev­ery busi­ness, wages are usu­ally the first things that will be cut to ease the pres­sure on a com­pany’s cash flow.

There is a real domino ef­fect that hits al­most all busi­nesses, par­tic­u­larly those pro­vid­ing ‘non es­sen­tial’ ser­vices, as con­sumers tighten their purse strings and stop spend­ing on all but ne­ces­si­ties.

Con­sumer-fac­ing busi­nesses will be forced to re­duce or­ders from sup­pli­ers and de­fer cap­i­tal spend­ing, fur­ther hurt­ing B2B com­pa­nies who are forced to put pres­sure on their clients for pay­ment.

Banks will also start call­ing in busi­ness loans, and credit card is­suers will re­duce their avail­able credit, in­sist­ing on higher re­pay­ments.

If this is sound­ing gloomy, it’s be­cause it is. This feel­ing of neg­a­tiv­ity re­ally seeps into the econ­omy and only serves to fur­ther down­turn. How can you be pre­pared? It is a fright­en­ing ex­pe­ri­ence and oc­curs rapidly. Re­ces­sions are like a tsunami; you can’t pre­dict one and by the time you see the warn­ing signs it’s too late. Un­for­tu­nately, this means it’s dif­fi­cult for com­pa­nies to be prop­erly pre­pare for the sud­den change in busi­ness con­di­tions.

There are how­ever, some steps all busi­nesses should take that can pro­vide a solid foun­da­tion to see you through any tough times. 1. Make a plan Set up a ‘sur­vival team’ of se­nior staff to cre­ate a game plan for a se­vere re­ces­sion; it’s bet­ter to hope for the best but pre­pare for the worst in this sit­u­a­tion. This team should in­clude an ex­ter­nal ad­vi­sor or ac­coun­tant to pro­vide in­de­pen­dent ad­vice and help you make any tough calls. 2. Brace your­self now There’s no doubt that eco­nomic con­di­tions will de­te­ri­o­rate this year. Even if a re­ces­sion isn’t on the cards, it would be wise to start mov­ing into sur­vival mode and put any plans for growth on hold. Con­sider cut­ting un­prof­itable ar­eas of the busi­ness as these will only be­come a big­ger bur­den when times get tough. 3. As­sess your cur­rent sit­u­a­tion Now is the time to ex­am­ine your cur­rent debt lev­els and fo­cus on re­duc­ing this as quickly as pos­si­ble as this can be a real area of ex­po­sure in a storm. You should al­ready be plan­ning for the bank to re­duce their as­sis­tance and don’t rely on them pro­vid­ing any help through the tough times. 4. Im­prove your pro­cesses You need to en­sure your billing and col­lec­tion func­tions are run­ning ef­fi­ciently to en­sure you main­tain a strong cash flow. This needs to be done to­day, don’t wait un­til the cash crunch hits and you need the money quickly.

A re­ces­sion can col­lapse many busi­nesses. While you typ­i­cally won’t see the signs un­til you are in it, en­sur­ing you have solid pro­cesses in place will go a long way to help­ing you sur­vive if one hits. And if not, at the very least, you’re pre­pared for the very worst.

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