By Nicola Cook, CEO of Company Shortcuts.
So, the Brexit debate rumbles on and parliament remains paralysed. Meanwhile, we shall keep calm and carry on while the politicians continue to battle it out and hopefully offer up some clarity on what the future will look like post 31st October sooner rather than later.
As business owners we’re used to focusing on controlling the controllables and letting go of everything else, but how many of us can ever recall such politically and economically turbulent times?
As standard we should already be de-risking our businesses and focusing on growth, but in times of uncertainty it will always come down to the survival of the fittest. Sadly, many businesses maybe in for a deep sharp shock if they do not act now, ensuring they are prepared for any possible Brexit fallout.
As someone who survived (only just) the last recession in 2008, there are some business lessons I’ve personally learnt and now apply to ensure my own business is sufficiently stress-tested and derisked.
Below are four test points you can use in your own business.
1. Lead times and cashflow
What is the average lead time in your pipeline and how much positive runway do you have in your cashflow? Your runway on cash should always exceed the length of time it takes for you to win new business. A standard business principle that sadly many businesses fail to understand or implement. I recently read some sector specific data on marketing agencies. More than 50% have less than six weeks’ worth of cashflow, (less than 3% had more than 12 month’s worth of positive cashflow).
I know of some businesses that are scraping along month to month, permanently living hand to mouth with less than a month’s positive cashflow. Cash is your business oxygen and it’s your job to ensure you have sufficient in the tank before you get out of your depth. If you were to cut off your cash source today, how long could you trade? Long enough to replace any lost income with new business? If not, then act now and focus on building up your cash reserves or put in place other options for working capital should it ever be needed. The best times to raise working capital, is when you don’t need it.
Once your back is against the wall, your options are limited. Lead times are always impacted by reduced confidence in an economy and this puts pressure on cash. What would happen if your lead times doubled, could your business survive? Act now as if this is already the case. Longer lead times are the one certainty amidst all the Brexit uncertainty.
2. De-risk your client base
Who is your largest client and what percentage of business does that represent? If the answer is more than 30%, you’ve got a big problem. If you lost that one client would it plunge you from profit into loss? Similarly does all your business come from one route to market? What would happen if there was a change in legislation or that sales channel was disrupted? That’s what happened to me in 2008 and I soon discovered that we burnt through all our cash in the race to replace income with new business.
3. Get lean
It’s very easy when times are good to carry additional unnecessary cost, allow inefficiencies to remain unaddressed and to allow people to perform below their maximum productivity. Where does your profit come from – really? What products or services, which sectors, which customers, which team members? Focus on these assets and cut the rest. Trim the fat NOW before you’re in a situation when you have to.
4. Go Global
The best way to protect yourself against uncertainty in one market is to balance your revenue from income from additional sectors, markets or geographies. Now is THE perfect time to think about spreading your horizons.
How could you reach a global market? Many businesses are leveraging the internet as a way to reach a worldwide audience using their existing infrastructure. How could you reach a new geographical market? Through distribution perhaps? Or digital? Or partnership? Or could you repackage your existing offer and repurpose it for a different client type or a different sector? Offset a downturn in one market, geography or sector with growth in another.
Take time to stress test your business now and be confident that whatever happens, you and your business will be sufficiently de-risked to ride out any storm.
To watch a video on how to improve the sales focus of your business, follow this link: companyshortcuts.com/neinsight