Seven key steps to keeping afloat in economic ice age

The economic ice age is upon us, and businesses are starting to see the effects. I don't believe these will be new. We'll instead see an increased level of pressures - so this article isn't going to bring stunning insights but rather timely reminders of things to be aware of and steps to take.

First, two general points.

Remember that economic hard times have come our way before, and companies that reduced current expenses without sacrificing long-term health have emerged successfully in the past.

If your firm is facing financial pressures, I recommend you face up to them early on and take some sensible steps, rather than adopting Mr Micawber's approach (it didn't do him much good: he ended up in debtors' prison).

Have a good hard look at your business, and compare it with benchmarks for your industry to see where efficiencies and cost savings might be made.

If you're not sure where to find those benchmarks, or what efficiencies are possible, talk to a professional adviser. It will be money well spent. A good adviser will challenge your assumptions and help you to make better decisions.

Here are some areas you might be wise to focus on in the coming months.

1. Improve your cash flow management. In your cash-flow forecasting, make sure you include a worst-case forecast. If you plan for the worst, you know whatever happens is likely to be better. Use cash-flow reporting to measure and monitor what is happening in your business week by week.

2. Get more out of your working capital. There are three areas where you might be able to use your working capital more efficiently. Look at the way you manage payment conditions and discounts for customers, likewise for suppliers, and also consider whether you have the most efficient stock management possible in your line of business.

3. Consider debt restructuring. Try to find the optimal funding structure for your business. Could you find new equity, perhaps by combining with another business or taking in new partners? Do you need to talk to your bank? If you can convince it your business is there for the long-haul, and that you have the markets and the systems to succeed, you may be able to negotiate better loan terms.

4. Look after your good customers. Keeping your customers satisfied and ensuring that they have a good experience dealing with you will help to ensure their loyalty. It's much easier to keep a customer than to find a new one - and if your product is one that will help them to succeed, you may well benefit through increased sales. Look at your business from your customer's perspective - and make sure you keep marketing. It might seem like a luxury in hard times, but if your brand isn't being seen in the marketplace, your customers may think you've disappeared. In fact, if you keep marketing and your competitors don't, you may gain customers from them!

5. Keep communicating with your staff. With all the publicity the economic crisis is getting, your staff will be concerned. Businesses gain a lot of staff support when they let their people know what is going on, ask them for ideas, communicate openly and honestly, and listen to their suggestions and concerns. Remember, if you don't communicate, staff will fill the void with rumour and speculation.

6. Keep communicating with your other stakeholders. Manage the expectations of your bank, your suppliers, your shareholders, your landlord and your advisers by keeping them informed about your long-term vision and what you intend to do to ensure that you achieve it.

7. Be good at what you do. Is your product or service the best it can be? Do you have a five-year and a 10-year plan for improving or replacing what you now offer? Times will change, and your business' long-term survival depends on changing with them. During a recession, it's wise to stick to doing what you do best, what is most profitable, and what will take you forward to your 10-year goal.

None of these suggestions is original, but I hope they may act as memory joggers in these more difficult times.

* Tom Davies is the director of professional support for the New Zealand Institute of Chartered Accountants.