The broader economy has adopted a variety of responses, depending on the impacts to their sector:
- Banks have instigated tighter controls on access to debt finance;
- The ATO has tightened payment terms, significantly increasing the prospects for creditor strain where ample cash reserves haven’t been maintained;
- All sectors have experienced a shift from a buyers’ market to a sellers’ market, resulting in an increasing number of suppliers competing on price alone;
- Import costs have risen by 30 percent because of the drop in the Aussie dollar;
- Many businesses are dealing with customers that have either extended payment terms to better manage cashflow, or defaulted on payments when that is the only option left;
- A significant number of WA businesses have been forced to seek opportunities in new, unknown industry sectors now that the mining construction, mining services, state government utilities and residential housing construction sectors have contracted as long term sources of revenue;
Many business relationships that were once friendly and built on trust have become fractured and face litigation due to increasing financial pressures.
While there is no one silver bullet that will fix all the challenges that you face, we've compiled a selection of responses that we, at Genesis Business Advisors, have encountered amongst our clients over the past six to twelve months.
You might find these strategies a useful source of inspiration or, if nothing else, an alternative perspective to your own responses.
Strengthen Management Decision Making Processes
- Hold leadership team meetings as often as necessary to monitor progress against your business plan. We suggest weekly or fortnightly when circumstances are critical;
- Critically review leadership behaviour to ensure a functional, cohesive leadership team;
Grow Revenue Streams
- Consider premium pricing. The most attractive growth opportunities in 2016 will continue to be in the premium segment of all markets. Fearless pricing, high-touch CRM, and remarkable delivery will be key success factors;
- Offer new products or services to existing clients that address new opportunities or challenges that have arisen;
- Seek out new clients in more active industry sectors;
Cut costs to achieve realistic profit expectations
- Look at areas you can make changes to reduce employment costs.
- Explore the benefits of non-traditional employee/contractor structures for your team including remote work, digital workspaces, revenue or profit sharing, and intrapreneurism.
- Negotiate reductions in employee wages/salaries for an agreed period;
- Introduce flexible work times (ie. four day working weeks);
- Cross train key staff to improve overall efficiency and employee satisfaction;
- Reduce non essential staff numbers;
- Reduce operating costs
- Negotiate lower cost supply agreements with suppliers;
- Implement new technologies to more effectively manage job costs and improve productivity;
- Reduce overhead costs
- Renegotiate tenancy agreements or relocate to cheaper premises. Perth CBD and wider metro rental rates have dropped 25 - 30 percent over the past twelve months. It might be worth breaking your current lease agreement;
- Sell surplus plant and equipment to reduce or stop lease payments and free up valuable cash;
- Renegotiate lower cost access to finance with banks/lenders;
Improve Cashflow Management
- Closely monitor cashflow forecasts on a weekly basis;
- Tightly manage debtor payments using a clear understanding of your clients’ payment approval processes;
If you would like to explore any of these strategies in more detail, give me a ring on (08) 9389 4414 or let me know the next time we meet.