Since time immemorial humankind have recognised that the good times are always followed by the lean times. Through various mechanisms they prepared themselves for the lean times to ensure their continued survival. Instinctively we know this dynamic, but for some bizarre reason businesses today seldom prepare themselves for the bad times … have they forgotten how, or are they in denial?

There is no such thing as unprecedented growth. Every business will face business cycles, and no business can last forever! Many business ‘Gurus’ in the 1990’s said that this was an old-fashioned principle, which no longer applied, effectively changing the laws of nature with the spoken word.

The fact is that, as sure as night follows day, your business will experience tough times. This fact is merely a dynamic of the business cycles experienced by your business, which come in short, medium, and long-term waves.

Perhaps you are not aware of these cycles in your business or have simply not identified them. If this is the case, you have the option of doing some serious analyses. We could guide you through a whole analytical case which will identify your business cycles and thus attempt predicting the lean times in your business … but what will you do to make sure you come through the storms with your ship intact?

There is one simple strategy, which not only obviates all the expensive analyses, but will, if followed, ensure you optimise your chances of weathering all the storms to come. That strategy is called ‘Focus on Survival’!

There are some simple rules to this survival strategy, which must be followed by every employee in the business, no matter what their position. If the principles involved become a habit, they will not only strengthen the business but will strengthen the personal lives of everyone employed by the business.

We unfortunately do not have the space to give you all the rules to this survival game, but here are the most important:

• Build your Cash Reserves. Cash is King, and when the tough times come visiting, it is the strength of your cash reserves that measure your durability. There is no maximum level, but the minimum level should be equal to between 3 and 6 times your monthly production expenses. Production expenses in this context means all expenses of the business, whether these are fixed (overheads), variable (do not vary in direct proportion to sales activity) or variable (vary in direct proportion to sales).
• Contain Overheads. Too many business leaders think that the good times will never end and when they have a good trading period they rush out and spend money on all manner of things. Most of this expenditure results in adding to the monthly overhead expenses (as overeating ends up on the waistline) and within a short space of time the overheads start chasing the sales. Manage these expenses very carefully and do not let them become obese! In short, avoid ‘lifestyle creep’.
• Turn Inventory into Cash. Inventory in this case means anything that represents dead money. It manifests itself as stock, debtors, intellectual capital, unexploited opportunities, and the like. Whilst in the dead form it has potential value if you have time to liquidate it at your leisure. Come the tough times and you must turn it into cash in a hurry, it is surprising how quickly it loses its ‘potential’ value. Keep inventory levels to a minimum! Remember, your asset is only worth what someone else is prepared to pay for it.
• Nurture good relationships. People do business with people and all businesses consist of people. Truly healthy relationships are invaluable! Creditors can be very accommodating when they trust and respect you. Debtors will often do their best to pay you earlier if they value you as a supplier. Staff will willingly give you 110% of their commitment if they respect and trust you as a leader. It is amazing what you reap when you sow healthy seeds!
• Drive sales. Every day, week and month should have its sales targets. These targets must be met otherwise the backlog can grow to unmanageable proportions. However, be careful, it is not a case of sales at any price – it is a case of sales at the right Value and protect your existing customers (keep the good, out with the bad) and continually search for those new customers you would enjoy doing business with.
• Retire debt. It is your duty to retire your debt as quickly as possible. The concept of ‘Gearing’ is very logical, and you can make a lot of money through gearing your debt. When times get tough though, these self-same gearing ratios can become your worst nightmare.
• Run a lean, mean, machine. Always be on the lookout for excess baggage. When you find it, in whatever form, shape or size, eliminate it. Not only does excess baggage weigh you down – it costs you money to carry it. Rather take that money and put it into your cash reserves.

You owe it to yourself and all those who depend upon you to manage your affairs correctly. Run your business with the belief that it could go bankrupt tomorrow. Watch the excesses by monitoring the little things as these will give you accurate pointers to the excesses in the big things. Look after the pennies and the pounds will look after themselves (at the same time, do not be penny wise and pound foolish).

This ‘Survival Strategy’ is a simple game if you understand all the rules. The interpretation of these rules makes the game both an art and a science, making it complex to the player.

Remember that internal misjudgments are six times more likely to cause business failure than external factors. The message is clear … keep objective help close at hand at all times, and if you do not have it, get it without delay.

Success in business is all about getting the business fundamentals right … and the actions you take!

QUOTATION:

As the saying goes, the world makes way for a man or woman who knows what they want. ‘Upon arriving at the fork in the road, Dorothy asked the wicked witch which road to take. The witch then replied, where are you going? Dorothy said, I don’t know. The witch then replied, well it doesn’t matter which road you take.’

The moral of the story: if you don’t know where you are going in life, you will wander aimlessly in your life’s journey and no-one knows where you’ll end up.

                                                                                                     

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