In the three months running up to May, the UK economy shrank by just over 19%, and we’re heading towards the deepest recession in decades.
This isn’t good news for anyone, but in particular, business owners will be asking themselves, what can I do to protect my business from a recession?
When you run a business, your own success is interwoven with the success of your team and clients as well as the processes you follow, so in taking care of your business, thinking about the bigger picture of what and who is involved is essential.
So what do you need to do as a business to not only survive but thrive?
To protect my business from a recession, you need to review your:
- Leadership style, values & culture
- Communication with staff and customers
- Working capital – funding, cash flow, stock, debt collection
- People – having the right people on the bus in the right seats
- Costs & processes – strip out waste
- Your technology – is it helping you to be efficient?
- Marketing – is it generating enquiries?
- Sales – are you generating profitable sales?
- Company dashboard incl management accounts
- Meeting structure – are they structured and aimed at moving the business forward?
We will look at each aspect and explore some of the areas that you could work on to protect your business in a recession.
Leadership Style, Values & Culture
If you are to come out stronger through a recession then, from my experience of working with over 400 businesses over the last 20 years, you need to be a good leader. Unfortunately, there are many definitions over what defines a good leader. For me, it’s about servant leadership.
The question you should ask yourself each morning (as part of how can I protect my business from a recession?) is what does my team need to be successful? The inverted pyramid below shows how the servant leadership model works.
An often-quoted phrase I like to use is “culture beats strategy”. I think in times of economic crisis, if you have a strong culture with everyone pulling together, then you have a team that can reimage the business and create a new strategy to overcome any new challenges that arise. A broken team means that you are stuck with doing that yourself rather than bringing in the knowledge and expertise of those in the business.
Your values underpin everything you do. Make sure you review the values that are exhibited by the team (and not what you would like them to be). Do they represent the values you want in your team? What can you change? Do you have any high performing but rogue employees? What damage do they do to the business?
Communication with Staff and Customers
Good communication in a crisis is critical. This means thinking about what information is needed by your staff and customers. In my experience, negativity loves a vacuum and so if there is bad information that needs to be shared then you are better doing it sooner rather than later. The actual news tends to be better than what the rumour mill has generated.
Working from home adds additional demands on communication. How do you tell everyone what is going on in the company? We use Monday.com and it’s clearly becoming more popular following COVID-19 as people find ways to capture processes and communicate what is happening in the business to everyone.
Review your current communications with customers and staff. What can be improved? What can you do more of that would be effective and what can you stop doing?
Working capital (Funding, cash flow, debt collection)
Cash is king and is the lifeblood of any business. During a recession, there is real pressure on cash as customers take longer to pay, profit margins are squeezed as customers look for lower-cost solutions, and suppliers offer reduced credit terms.
The key is to keep a close eye on cash flow. That is, you need to be able to quickly determine how much is:
- In the bank?
- Overdue and likely to be a bad debt?
- A work in progress, WIP (i.e. what is going to be invoiced at some point)
- In stock and is realisable (i.e. deduct valuations for dead or very slow-moving stock)
- Future liabilities including PAYE, VAT and corporation tax.
You need to calculate what you need in order to run the business. The first step is to determine what your overheads are. This is the amount of money that the business needs simply to keep the lights on.
Before 2020, I would have said you need to have at least 3 months cash in the bank for when, like in the pandemic, the unthinkable happened for some businesses and sales simply stopped. However, seeing how the pandemic and subsequent lockdowns have materialised, having 6 months overheads in the bank would be a safer bet going forward.
For smaller businesses, with online accounting with the bank feeds automatically updating the system it is relatively easy to see how much is in the bank, how much is owed and what is overdue. Depending on your business you should have an idea of what is being worked on that will result in additional invoices.
For more complex businesses, there are cash flow forecasting packages or, quite often, it’s a weekly task to keep a cash flow spreadsheet up to date.
So, actions from this section are:
- Ensure you can check your cash flow at least weekly or daily with good online systems.
- Regularly chase debt and, where they are well overdue, decide on a course of action to recover that debt. If recovery is in doubt, reduce your working capital, as bad debt that cannot be collected is over-inflating what is potentially available to you.
- Have a system for determining the value of work in progress.
- Ruthlessly manage stock to ensure that the right stock is purchased and in the right quantities. There’s no point buying a large amount of stock for a great discount if it ties your money up for too long. Fashions and habits change and you don’t want to be holding stock that you can no longer shift.
- Create a reserve account for VAT and corporation tax so that you are saving for what can be large future liabilities.
People – Right people on the bus, in the right seats
Having the right people in your business is critical to your success. In good times, it can be very easy for poor performance to be overlooked and for training to be skipped because there is less pressure on the business. But during a recession, every part of the business needs to be running optimally and, as Jim Collins is quoted as saying, having the ‘right people on the bus’- and in my view- in the right seats.
This means carrying out a review of your team. Who are your “A” team? Who do you rely on, who is underperforming?
Although it is very painful, you need to let go of any member of staff who isn’t performing or who doesn’t fit in with the values and culture of the business. There is no point in having a high performing individual who is highly disruptive, as they can significantly reduce the performance of the rest of the team and negate the benefits they bring to the business.
You will probably know who these people are because, as a business coach, I have a rule of 4 whereby if a client mentions problems with the same employee on 4 successive occasions, and if any supportive actions that have been identified to help them haven’t worked, then we start to have a discussion around their long term future with the business.
Costs & Processes – Strip out waste
When asking yourself what can I do to protect my business from a recession? You should remember that in any business, inefficiencies creep in. Whether that is paying for goods or services that are no longer required (redundant telephone lines used to be a common problem), paying too much where equivalent products or services are available at cheaper rates, or having inefficient systems and processes.
There’s an acronym that people who specialise in making processes more efficient use when they are looking for waste to remove from the business, called TIMWOOD.
TIMWOOD stands for:
This was originally devised for manufacturing environments, but it can equally be applied to service-based companies.
For example, with lockdown, we have all experienced the benefits of Zoom and have gained huge amounts of time by not having to drive to meet people (Transportation). Another big inefficiency in an office is not being able to find information because of poor filing or storage systems (Motion). Another issue is the reentry of data into different systems because they aren’t connected correctly, leading to errors in data entry, and additional work in different systems when a contact’s information is updated. (Over-processing & Defects).
Research has found that hunting for and reducing waste is the quickest way to gain efficiency saving, rather than trying to make the process part itself more efficient.
Flowcharting can be a great way to capture your processes in an easy-to-understand way. A useful exercise is to get a roll of brown paper and roll out part of it on a table. Armed with a book of post-it notes and the team, start with the beginning of the process and write down on a post-it what the first action is.
This is then done for subsequent tasks until you get to the end of the process. If any part of the process is broken or doesn’t work well, write in red what the problem is on another post-it and stick it next to the process. You should then end up with the whole process as a series of post-it notes and markers showing where improvements are possible. This is then photographed and transcribed into a flow chart and a list of issues is created.
The team then works through the issues to create a list of actions to resolve them. With the team involved, they will take ownership of the issue, and can then be tasked with getting it fixed with a reasonable likelihood of it being resolved.
Your technology – is it helping you to be efficient?
Technology, when implemented correctly, can be a great enabler and allows you to achieve a lot more in a fraction of the time it takes to do the same manually. Equally, it can be hugely frustrating when it doesn’t work. To stop this from happening, you need to be clear on what you want or need for your systems.
Once you have a clear idea of what you are trying to do with your processes then you should review your current systems:
- Does your technology support flexible working including working from home?
- How paperless is your system? What physical paperwork can be eliminated? It’s amazing when, for some processes, wet signatures were mandatory but, with lockdown, now electronic signatures are accepted.
- How connected are your systems? Do you have to do double-enter information?
- Do you have alerts in the system to warn the next person in the process that it’s ready for them?
- How secure are your systems? Do they comply with GDPR?
- What performance monitoring do you have in place?
Marketing – is it generating enquiries?
During lockdown, we’ve seen a few subtle changes in what is working and what takes more work. For example, lead generation on LinkedIn substantially increased.
If you aren’t already, make sure you are reviewing the performance of your marketing.
Every business is different, but you should be reviewing all aspects of your marketing:
- Keywords/Hashtags – do you know what you should be targeting?
- Content including expert articles/blogs/case studies/videos – what do you regularly publish?
- Website – is it up to date, easy to find, fast, updated & secure?
- Social media – do you regularly post educational & promotional information?
- Email marketing – what do you email to your prospects and customers each month?
- Video – do you have videos to quickly explain how you help companies?
- Performance – how often do you measure success?
Sales – are you converting enquiries?
Sales are the lifeblood of any company. If you are generating leads or pricing up tenders, how successful are you?
Most people asking the question what can I do to protect my business from a recession? will know that sales are an integral part of survival, but they need to be executed effectively and sustainably to survive in the long-term.
Sales are all about doing the right amount of activity and ensuring that you are achieving a good conversion from enquiry to sale.
A few things to think about:
- Are you generating the right quality of leads?
- How do you manage your leads? – Spreadsheet, CRM, task management system like Monday.com?
- What is your typical conversion rate? – How can you improve this?
- How does your customer onboarding process work (if applicable) How can it be improved?
- How do you track the performance of your business development team?
Company dashboard inc management accounts
All our favourite sports keep score. So why do business people struggle with this? It’s certainly harder with more complex data to collect but this should not be a determining factor.
With any scorecard, you need to agree on acceptable targets for each metric and, then in a spreadsheet, use conditional formatting to show underperformance in red and on-target items as green. You can get more sophisticated and introduce orange for mild underperformance and red for action required.
In my view, each month you should measure, record and analyse key metrics for:
- Marketing (e.g. website visitors, enquiries received)
- Sales (e.g. sales value, average order value, order frequency, conversion rate)
- Production (if you manufacture, e.g. right first time, productivity, delivery performance)
- Operations (e.g. utilisation)
- Services (e.g. customer satisfaction, complaints, service level agreements)
- Finance (e.g. profitability, EBITDA, debtors, cash flow, cash in the bank)
- Innovation (Training & New product development)
Regular structured meetings to create a drumbeat
Business these days is complex for even the smallest of businesses. There are so many things you need to get right to ensure you have happy customers, let alone all the regulatory requirements and, soon to kick in, issues arising from Brexit.
Also, a lot of businesses have a lot of meetings but don’t seem to document actions, and so nobody is responsible for any actions and so can’t be held responsible.
For the best performance, you need regular but focussed data-driven action-oriented meetings.
- Use a traffic lighted company dashboard so that the meeting only focuses on the key matters.
- Meetings have agendas, attendees read any reports prior to the meeting and actions documented with what, who and when they will be completed. Updating an online task management system during the meeting can be a great way to record the actions and means that the actions are up to date by the end of the meeting.
- Have a meeting structure and stick to it so that it is in everyone’s diary. Still run the meeting if someone can’t make it. Run the meeting for a maximum of an hour and ensure the actions are circulated quickly.
- The book, “Traction” by Gino Wickman has a great process for meeting structures and companies who have implemented it say they are a lot more productive than before.
The goal of getting the right meeting structures and processes is to reduce the number of meetings while ensuring the ones that you do run are effective.
I hope this artcile has answered your quetion of how can I protect my business from a recession?
It’s not an easy challenge to overcome, but SMEs have seen recessions through to the other end before and will do it again. By following the steps I have laid out in this article, your business will be in much better shape to take on a recession.
If you not only want know ‘how can I protect my business from a recession’, but also ‘how can my business thrive in the upcoming recession’, you can read my in-depth guide here.