Small business: Tips for riding out 2013

If things are looking tough for the year ahead, it's time to reduce reliance on external debt. Photo / Thinkstock

New Zealand small businesses are less confident about their prospects than they were a year ago, according to the CPA Australia Asia-Pacific Small Business Survey 2012. But while 28 per cent of small Kiwi firms expect the economy to shrink in 2013, 64 per cent still expect to see some growth in their own businesses.

The survey results found that business basics were essential to help ride out what for many is expected to be a difficult year. CPA Australia, one of the world's largest accounting bodies, has developed the following tips to guide small business through 2013.

Reduce your reliance on external debt
If you do not expect your business to grow in 2013, reducing your reliance on debt may be more appropriate. To reduce your reliance on external finance, businesses should be focused on increasing the productivity of existing assets and staff and improving cash flow. Improving cash flow can free up money to fund necessary purchases or investments without having to seek external finance and can be used to pay down debt.

Consider the following to improve cash flow:
• follow up on outstanding debts
• prepare regular cash flow forecasts
• prioritise your marketing to products and services that can be turned into cash quickly
•make full use of your suppliers' payment terms, but do not pay late
•reduce stock levels and replace slow-moving and obsolete stock with stock that has a faster turnover
•sell unnecessary assets

Improve your productivity
Getting more from your assets and staff is essential to success and ensuring your business is operating as efficiently and effectively as possible.

•evaluate the current performance of your business by collecting data on business performance and comparing that to previous performance, industry benchmarks and the strategic goals of your business
•identify key drivers of your business and set goals for such drivers
•regularly evaluate performance in those key drivers against such goals and identify areas for improvement, areas of risk and trends. The best way to do this is to develop a system that allows you to present such evaluations in a clear and concise way, such as dashboard reporting
•implement strategies from the evaluation and monitor their effectiveness, adjusting the strategy if necessary

Review your cost structures for savings
If a business cannot bring costs under control or pass increased costs onto customers, this reduces both cash flow and profitability and can impact the future viability of your business.

•review costs under your control. Be strategic in cost-cutting as it is not uncommon for businesses to cut aggressively, only to have to reverse some of those cost-cutting measures later on
•do not be afraid to ask suppliers for discounts and/or change how and when they deliver stock to you. This can for example, reduce warehousing costs if suppliers can give you "stock on consignment" or if they supply to you on a "just in time" basis
•compare your cost structures with other businesses in your industry and with your past results to identify areas for improvement

Adopt appropriate risk management strategies
Uncertain times may expose your business to risks that threaten its viability. Develop appropriate risk management strategies that help to reduce the following risks:

•relying too heavily on a small number of major customers
• relying too heavily on one supplier
• relying too heavily on one type, or source, of finance
•selling on credit without appropriate checks and not following up late payments
• fraud

Review your business plan for the changed environment
It is good practice to revisit your business plan and budgets and amend them to reflect current and expected circumstances.

•review the assumptions underpinning your business plan and, if those assumptions have changed, amend your plan to reflect such change
•evaluate performance and incorporate strategies to improve performance in the business plan
•reflect your amended business plan in your budgets and forecasts.