Cutting your cloth with competence – adapting to the times

11/04/2012 I went to the QBE Insurance AGM yesterday in Sydney and listened with personal and professional admiration to how a highly experienced international Board had worked their way through the worst year of natural disasters in their corporate history. The Board who I’ve watched operating for seven years, talked about how they’ve held the wheel tight through, quite literally, a series of very difficult storms. Like most of us, we admire those who unite and show they can stay the course. It’s good to watch teams who can work through the bad times as well as the good.

Watching how one of our largest global companies operate in difficult times was a good lesson. The management team were changing process and budgets to match the times.

Today, as I checked the twitter stream of commentary on small business, the news is about small business owners cutting back on personal expenses to fund their companies. Holidays are being downgraded, expenses are being cut and for many small business owners, this is also a time of stormy weather, albeit on a micro rather than a macro scale.  

While I am no economic expert, I do have access to a wide range of businesses and their owners and I am seeing it IS tough out there.

The statistics show that 51.1% of SME’s are considering borrowing in the next six months compared to 77.1% in the same period last year which suggests a trend to scale back borrowings and risk taking. The percentage of SME enterprises who were considering opening a new bank account declined to 10.4 per cent in November last year, compared to 14.4 per cent measured in June 2010. According to The Bibby Barometer Small Business Survey from Dynamic Business on 26th March, the survival of 22 percent of SMEs has been threatened in the past 12 months due to cashflow issues, with delayed payments for businesses one of the main contributing factors. The report found a staggering 49% of small business decision makers have experienced delays in payment and 27% have experienced bad debts.

A DBM survey suggests a growing dissatisfaction with banking, expressed by many businesses after a rise in satisfaction which occurred last year. Personally, my bank the Commonwealth have been wonderful since I started Taurus 16 years ago and by keeping them regularly informed, they have been a great addition to my informal Advisory Board team.

Following the last Reserve Bank board meeting that held the cash rate steady at 4.25%, RBA governor Glenn Stevens said the pace of economic growth was "somewhat lower" than forecasts in the bank's February review of the economy. The downgrade in growth prospects is expected to hit the government's budget, with Wayne Swan conceding it may be more difficult to raise the budget surplus of $1.5 billion in 2012-13.  Since the bank last considered rates one month ago, official data has revealed the economy grew only 2.3% last year, much below the long-term trend rate of about 3.25% the RBA had forecast.

RBA governor Glenn Stevens said the RBA board would wait until the publication of the March quarter inflation data, due later in April, before revisiting the need to cut interest rates. There is a good chance that after reviewing the March figures, interest rates may be cut to 4% from (4.25%) when the RBA meets on the 1st of May.  So what do we do meanwhile?

The advice is to tread conservatively and carefully. My own top 10 tips for adapting to harsher economic conditions follow:

1. Work with a staff team you trust and keep the communication open
2. Pull in the expertise you don’t have at your fingertips
3. Examine and workshop worst case scenarios
4. Create a practical plan to cut costs where you can and maximise revenue generating activities with key advisors
5. Have accurate financial figures to hand, profit and loss, balance sheet, receivables and payables and cashflow forecasting
6. Be prepared to make the change necessary however radical
7. Keep talking to your bank, customers and suppliers
8. Ask your suppliers for longer payment terms
9. Ask your customers and prospects to pay up front
10. Get some sleep and keep fit

And when in doubt thank those who are important!

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