When the going gets tough … people of real substance ride the wave and the weak drown in their own egos and ignorance. People of substance are mature enough to sit back and take a cold hard look at the world… and change … they do what they must do!
Just as there is no such thing as easy money, there is no such thing as unprecedented growth. As surely as night follows day, the good times do end, and the tough times kick in with alarming speed! When this happens, it is too late to become philosophical and reflect on how you should rather have focussed upon the survival of the business years ago, how you should never have been sucked into the belief that growth is unprecedented and lament ever having followed the advice of the ‘they say …’ principles. Suddenly, the mere sight of that state-of-the-art SUV sickens you!
If you did not adopt the strategy of ‘Survival’ as a fundamental approach to business early on, when times get tough you are forced into adopting this strategy. Sure, tough times come in varying degrees of ‘toughness’ and the business might be suffering from just a bad cold or it might be suffering from double pneumonia (in which case it needs intensive care). Your very first step is to diagnose, or get assistance in diagnosing, the severity of the difficulties which have afflicted the business.
Whatever the diagnosis may be, the most crucial aspect to gauge is how long the tough times are likely to last because this period dictates what you need to do to ensure that the business will not only survive but emerge from the other side of the curtain even stronger than it was before. The chances of survival are a function of the cash resources the business has managed to accumulate. You see, the cash resources are in essence a measure of the strength of the immune system of the business. The stronger the immune system, the better the chances of recovery!
As a responsible guardian of the business, you must do whatever it takes to restore the health of the business. Do not make the fatal mistake of allowing your ego to get in the way. You are going to have to make personal sacrifices. Some radical changes are going to have to be made – starting with you! Whether the business is a micro enterprise or a multi-national corporation, the same basic principles apply.
Unfortunately, we cannot go through ALL the steps you can take to weather the tough times, but here are a couple of pointers:
Do Not:
- Run to your Bank to extend your overdraft – it is too late to do this. In fact, your Bank has probably already started weaning you off your overdraft by enforcing an overdraft repayment programme. Don’t blame them … they too are in business and your risk profile has just taken a major beating!
- Panic – you must keep a cool head. If you panic, you will make the wrong decisions and start clutching at straws.
- Let your Ego dictate – we are so obsessed with buying things we don’t need to impress people we don’t like or have not even met! This is plainly a stroking of our egos. Most of the ‘assets’ we buy/own earn us absolutely no return. Lighten your load by getting rid of them and put the money to good use … the saving of the business!
- Throw good money after bad – if you are going to invest ‘rescue’ capital be sure that this capital will in fact rescue the business and not go ‘down with the ship’.
Do:
- Understand precisely what the causes of the difficulties are. If they arose as a result of normal cyclical trends, you just need to ride the wave (provided you have the cash reserves). If there are more fundamental, sinister reasons, you will have to take up the knife and start planning careful surgery – in some cases, even a funeral.
- Free up as much cash as you can. On this score there is a wealth of opportunity. Cash is hidden all over your business, to be found in stock; debtors (offer them even higher settlement discounts for a specified period); underutilized machinery; scrap; motor vehicles (a major source); insurance portfolio; supplier contracts; lease agreements; purchases … and many other areas, including staff costs (see below).
- Stretch Creditors. By now you should have developed a sound relationship with your Creditors. Make arrangements to stretch them that little further – even 15 days can make a huge difference!
- Cut your overheads, not service or productivity as these can cost you far more than the expenses you save, so take care not to damage the infrastructure. The trick here is to start with the little things and work upwards – you will be surprised how much you spend on toilet paper! The little things point you to the big things.
- Strengthen relationships with all your existing customers. The last thing you can afford to do at this time is lose another one!
- Re-examine your core objectives and goals. Perhaps you were headed in the wrong direction and this latest crisis is a wake-up call to take a different road.
The first-place business guardians seem to look today when the tough times hit is the payroll. Please be incredibly careful when you start looking at this area of cost reduction. Here are some old-fashioned techniques that might just end up being a win-win situation:
- Do not cut into the bone. It took many years to build your human resource and skills infrastructure. When you are left with little option but to reduce your payroll expenses, be careful not to damage that infrastructure. Carefully analyze the skills base you need to keep the business competitive and ensure you retain those skills vital to keeping the business in the race.
- Reduce payroll expense with time off when the squeeze is just a hug. Let staff take additional time off, take extended unpaid leave or even a sabbatical. Retrenchments are a last option because at least you keep those seasoned, trained staff available for when the scare is over.
- Introduce short time. It is better to get paid for four days out of five or for five hours out of nine than not to get paid at all. By introducing short time, you are at least preserving some modicum of staff morale and not destroying it in its entirety! Just make sure you do not compromise customer service in the process!
- Enforce leave. Encourage employees to take those countless accumulated leave days. You should already have provided for the funds to cover this expense … or have you? At the very least you will save having to pay out accumulated leave if you retrench staff.
- Reduce remuneration packages. VERY unpopular, but HIGHLY effective. First you cut executive and management packages, and then you cut the packages of other staff. Generally, the ratio should be in the region of a percentage three times higher for executive and management staff than for general staff. After all, it is executive management who should have ensured the company had a sufficiently comfortable cushion to weather the tough times!
- Retrain staff. Look at all functions in the operation. Some can easily be merged with a little training. The trick though is to retain the person with higher skills and train them to execute the lower skill functions. The reverse is simply not workable.
- Do not replace staff when they leave. People move on to other pastures. When they do, just don’t replace them. Divide the duties of the departed employee amongst other staff. This is known as the ‘gently, gently’ approach and can only be adopted if you have time on your side.
- Take a cold hard look at all your offerings and/or divisions. Those that are not making money or are earning you a bad name should be cauterised. Keep the best of the staff (preferably junior) and get rid of the rest.
- Outsource for savings. The cost of having many activities run in-house may be costing you more than having some outside service provider rendering the service to you. This option opens acres of fallow ground … far too opportunistic to cover in this letter though. Just watch the fine print!
Our objective in this letter was not to divulge the ‘secrets’ of the business turnaround ‘specialists’ or embark upon a narrative of how to give your business an extreme makeover in three easy lessons – for these you will just have to keep reading, and mining, our blog posts or contact us to get in touch with the right people.
Success in business is all about getting the business fundamentals right … and the actions you take!
QUOTATION:
You must learn day by day, year by year, to broaden your horizon. The more things you love, the more you are interested in, the more you enjoy, the more you are indignant about – the more you have left when anything happens. (Ethel Barrymore)
ALL CONTENTS OF THIS E-MAIL ARE COPYRIGHTED BY The Noma Asil SA Trust. ALL RIGHTS RESERVED. REPRODUCTION OF ANY PART OF THIS DOCUMENT IS PROHIBITED WITHOUT THE EXPRESS WRITTEN CONSENT OF The Noma Asil SA Trust.
Nothing in this e-mail should be considered personalised investment, legal, professional, or medical advice. Although our employees may answer your general customer service questions, they are not licensed under any laws to address your situation in any of these areas. No communication by our employees should be deemed as personalised investment, professional, legal, or medical advice.
Advice and information provided in this e-mail is not intended as, nor should it be considered as substitute for, legal, accounting, or other similar professional advice or services. Should such advice or services be appropriate, readers are advised to seek such advice or service from the appropriate professional. Further, The Noma Asil SA Trust does not accept any responsibility or liability for individual reader’s particular interpretations, uses or applications of information provided, and readers of this e-mail automatically indemnify The Noma Asil SA Trust from any such liability.