When will we learn?

Ten years. Is that all? We have short memories.

It’s just ten years since the start of the last financial crash that caused banks to go bust and sent others running to governments for support. And let’s be clear it was entirely self-inflicted and avoidable. Too much debt being granted to over-burdened borrowers with too little or weak security……..

……….by greedy bankers (and I don’t mean the ones you and I meet on the frontline many of whom suffered with their jobs).

Fast forward to today and it’s happening again.

The level of unsecured consumer debt is back at its pre-recession levels. 85% of new car purchases are on debt, much of it linked to the residual value of the vehicle after 3 years. And guess what? As second hand car values fall, as they are doing, those residuals won’t be worth what the bankers expected. Expect to see more profit warnings as we saw from Pendragon, the UK’s biggest car dealer this week, and the report which revealed that across the sector, dealers have 16% more unsold stock than a year ago.

It’s deja vu all over again! When will we learn?

So why does this matter to hardworking entrepreneurial business owners?

Opportunity.

As large corporates struggle to adjust to the downturn that’s coming, more agile entrepreneurial businesses can fill the void. Here are my five top tips for surviving and thriving in a recession:

1. Put up your prices – while this may seem counterintuitive, if you are going to lose customers anyway you need to make up the shortfall in sales. Negotiate lower prices from your suppliers (‘there’s a recession coming I need a discount’ – don’t worry they won’t have read this!). And be more selective about who you sell to.

2. Adjust your business model – use a tool like the Business Model Canvas and revisit how you do business. Is your model robust and designed to take advantage of a recession? What will be your customers’ pain points? How can you relieve them?

3. Re-visit your budget and cash flow forecast- perform a sensitivity analysis on your budget by reducing sales volumes, increasing prices, and identify cost savings. Remember there are always cost savings….even in the leanest of businesses. Focus on cash. The businesses that survive and thrive in the coming downturn will be the ones with cash in the bank, not profit in their accounts.

4. Adjust your credit terms – or preferably don’t give credit at all! Develop the attitude that it’s not a sale until the cash is in the bank.

5. Involve your team – not everyone enjoys a choppy sea, so if you are carrying passengers put ’em ashore, trim the crew and get the fair weather sailors off the boat and prepare for stormy waters. Make it fun. Reward endurance, persistence and loyalty, the qualities that matter when the going gets tough.

If you are thinking “He’s gone bonkers! Put up my prices, don’t give credit….I’ll lose all my customers”. Then that’s exactly what your competitors will be thinking which is why they won’t do it. The survivors in a recession do exactly the opposite to everyone else.

And they’ll be some bargains around – assets and businesses – to pick up cheaply if you really want to make hay (even if the sun isn’t shining).

Noel Guilford, Principal at Guilford Accounting
Noel Guilford is the principal of Guilford Accounting a small business accountancy practice specialising in advising owner-managed businesses on current accounting, finance, and tax matters. You can reach him via email at noel@guilfordaccounting.co.uk or by phone at 01244 660866. He is the author of the 'Figure it out - an entrepreneurs guide to understanding your business numbers' which you can obtain by visiting guilfordaccounting.co.uk.​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ His latest book, How to Build a Successful Business' will be published in 2018.

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