With the cost of living increasing at its fastest pace in almost 10 years and inflation hitting 4.2% in the year to October 2021, many consumers will be more cautious about spending. This could mean you find your business taking a hit on turnover just when you might be having to pay more for stock and your other costs are rising. It may be tempting to try and pass these costs on to the consumer but this could have the effect of making them look elsewhere for cheaper options.
So what should you do to make your business more resilient and ensure you can get through this period of uncertainty? We’ve set out below some of the key issues you should consider.
- Just like your customers, you may be able to source stock and other goods at a cheaper price so consider alternatives. You may also be able to improve cashflow by reducing stock levels and now might also be the time to consider whether all your goods and services remain profitable for you.
- Make sure you have realistic budgets set and can monitor your current financial position to identify issues, especially with cashflow, at an early stage.
- Review your business’ key performance indicators (KPIs) and measure them regularly. This may include debtor days, stock turnover, gross and net profit etc. Check your debtors and chase up overdue invoices where appropriate. If you have customers who won’t pay – don’t continue to provide them with goods or services!
- The liquidity position of the business should also be reviewed to consider whether this should/could be improved. Liquidity measures a business’ ability to pay its current liabilities out of its current assets. Generally, if liquidity is less than 1 it may mean that a business could have difficulty in servicing its debts over the next 12 months and steps might need to be taken to improve the position.
- Consolidate/build on your customer relationships – putting the extra effort in could lead to many benefits all round. Similarly, look at strengthening your relationships with suppliers, this might put you in a better position if you need to extend payment terms.
- Review banking/lending facilities and look at whether these are adequate or if further funding is needed in the short/medium term. Can lending be restructured to obtain better terms?
- Review your staffing needs – this doesn’t have to just be cutting staff but may be looking at opportunities to train/expand your staffs knowledge and help grow the business. Can the business benefit from any of the government’s current training opportunities?
- Ensure your staff understand the business’ strategy and buy into this. You could encourage staff to look at how the business operates and if they can identify ways of streamlining processes, finding cost savings etc.
- If price rises are unavoidable consider the best way to implement these and minimise the potential loss of customers.
The above are just a few suggestions and not all will be relevant to every business. The key is to ensure you know exactly where your business is now and plan ahead to maintain your position and identify any issues well in advance. For any help or advice considering your position, please contact any of the team at Wells Associates.