20081101
The global credit crunch has hit the economy hard making it an anxious time for small business owners. You may not be able to recession-proof your business entirely but there are a number of actions you can take to improve your chances of weathering the downturn in business activity and coming out the other side. Among the most important is how you continue to relate to the people you rely on to stay in business - your customers and your suppliers.

Customers


With consumers cutting back their spending level, encouraging existing customers to continue dealing with you is a smart move. During a downturn they may be facing financial challenges of their own so, first up, consider if there are special terms or value-adds you can offer that will make it easier for them to buy from you during this time. On the other hand, this is also the time to review customer profitability and 'fire' those who aren't showing a return commensurate with the effort you are putting into servicing them.

Collecting what's owed to you within a reasonable period can present a real challenge during an economic downturn. Send your initial invoices with a pre-addressed and stamped remittance envelope to encourage prompt reply. Use the phone to chase accounts as they go overdue - a diplomatic telephone call is a lot harder to ignore than an impersonal reminder statement that turns up in the mail. Changes in the billing cycle can improve matters - billing a quarter of your customers every week rather than billing everyone at the end of the month can even out the flow of funds coming back into the business.

While it's tempting to accept any business in slow times, a high risk customer can end up costing you money. Run a credit check before accepting new accounts and ensure the customer understands your credit terms. Review your credit terms to see if they are in line with the industry average - maybe they need tightening up to improve cash flow. Reducing the credit period may lose you some customers, but this might be compensated for by the majority paying sooner.

Often, the first cost to be cut in a downturn is the marketing budget. Consider, though, sales only follow marketing. Monitor the effectiveness and profitability of your marketing campaigns carefully and only continue the most effective. Reduce the size of your ads so you can run more without increasing your total cost. Introduce a referrals programme - use low cost communication tools like email, postcards or personal phone calls to let customers know you are interested in receiving referrals from them and what reward they will win for any profitable business they send your way.

Another temptation is to decrease prices. While it may be strategic to offer discounts or special deals to especially valued customers if that's what it will take to hold them, cutting prices to all and sundry will really cut into your margin. Run your figures - will the consequent fall in profit be more than compensated for by the expected increase in sales volume? Try improving the service on offer to the customer or around the product - this can add value without any significant increase in costs.

Suppliers and the supply chain


Most businesses are both suppliers and customers at the same time. When demand slackens your suppliers will be sharing the hurt. Just as you may be prepared to offer discounts and deals to good customers, so the suppliers you have a good relationship with may be prepared to renegotiate prices with you now. Agreement to pay key suppliers promptly or on the due date by direct debit should win a discounted price.

In a downturn, the last thing you want is to be stuck with shelves of unsellable inventory. If you don't have a stock management system, this is the time to implement one that can predict your minimum inventory needs and the correct time to order them in. Liquidate deteriorated or obsolete items in inventory.

Rationalise your supply chain by aggregating purchases so that you aren't buying the same item from multiple suppliers - it is inefficient and time consuming and also limits your negotiating leverage. There's a caveat though - select your suppliers carefully: if they go under, you don't want to be dragged down with them. If they can't make their production quotas you may miss out on receiving supplies.

Downturns don't last forever and businesses that make the right moves to protect themselves will come through. Consult a business advisor or your accountant to get a clear view of your situation and advice on what tactics you can take to protect your business.