Six actions business owners can take to survive economic turmoil

It’s stressful running a business, whether you employ two people or 200.

In challenging economic headwinds that saw only 0.2 per cent GDP growth last quarter and likely negative growth this quarter, don’t wait to be told we’re officially in recession. Start acting now to put in place initiatives that ensure you come out the other side of what could be a prolonged downturn.

Don’t wait to be told we’re officially in recession. Start acting now to ensure you come out the other side of what could be a prolonged downturn.Credit: Tribune

Hope is not a strategy. From my previous life in an insolvency firm, I saw firsthand the impact of ruined lives when warning signs are ignored and businesses fail.

The first step is to assess what’s happening in your business so you can right the ship before problems snowball. Be alert for four key warning signs:

• Customers take longer to pay you
• Static or reduced sales, reliance on one or two large customers, and carrying excessive stock
• Continually tight cashflow (you are stretched to pay wages, super, creditors or your bank)
• Staff and management turnover or unrest

These temporary issues can become long-term issues, and by the time many business owners realise this, it’s often too late to turn things around.

Cash, not profit, needs to be your focus right now. Put in place a rolling 13-week cash flow forecast and review it every week. This helps manage what’s in front of you, identify how much you have to spend (or need to raise) and know when to rein in spending.

Build business resilience

Having worked with hundreds of businesses to steer them back on path, there are six key actions to improve resilience.

Take a cold hard look at strategy. To survive long-term you need the right strategy, adequate and appropriate funding and, crucially, the right people to execute your plan.

If the business is underperforming, making just one or two changes can have an impact. It varies, but a common change could be culling low-margin products or customers.

Innovate. When times are tough, most business owners pull down the shutters on marketing and research and development. If you persevere with innovation, you stand out from the crowd. This is a more resilient long-term strategy than the slippery slope of price cutting to outlast your competitors.

You may need to consider a merger to survive a tough period. Or if you’re doing well, keep an eye out for competitors you may be able to acquire.

Can you diversify to create new income? For example, I know of a hotel cleaning business that came to a screaming halt during COVID lockdowns and successfully pivoted to aged care cleaning. Or is it time to streamline, having a laser focus on what you do best?

Quick balance sheet boosts. Consider selling non-core assets and look at the sale or leaseback of other assets. Be forceful in managing your accounts receivable and ruthless in managing inventory. Pay down debt – in tough times banks pay more attention to clients with high debt levels.

Look after your mental and physical resilience. For me, this involves cold plunges, saunas, breathwork, float tanks, intermittent fasting and exercise (great for boosting energy, sleep, clarity and immunity – key essentials that put a business owner in the right frame of mind to make hard decisions).

For others, it might be time spent outdoors, meditating or gardening. Find what works for you and your staff. This is not just feel-good stuff – it’s clearly linked to productivity, which nationally is declining.

Stress test your business by modelling two or three key assumptions and how they would impact (for example: what if debtor days were pushed out by 10 days, and revenue declined by 20 per cent?). Workshop the measures you could roll out if that happened.

Every business owner is (or should be!) wondering if their business will still be standing by the time this economic cycle improves.

Ask for help, get more support. This is crucial: too many business owners are afraid to put their hand up for help. In my experience, you get brownie points with your bank if you ask for help as they’ll see you are pragmatic and willing to make tough decisions.

Your financier wants your business to survive, so talk to them, and they’ll have working capital solution advice and can connect you with a turnaround specialist whose sole job is to ensure businesses survive and thrive. Early intervention is the key.

Michael Fingland is a Chartered Accountant, and founder of Vantage Performance, who for two decades has worked with Australian business owners to help them scale up and solve financial challenges.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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