Burn off the fat

Tough times are a great excuse to cut costs and take out under-performers.

Tough times are a great excuse to cut costs and take out under-performers.

Tough times are a great excuse to cut costs and take out under-performing people. That said, if you can run a tight ship, a recession can allow a smaller operation to gain market share and move into a position of strength for the future.

These are my tips for taking advantage of these bleak times:

• When companies are hurting, they want to reduce costs and prices. Your larger competitors generally have less flexibility to do this as they simply have more overheads. Provided you give a really great service, purchasers will be more inclined to give you a go

• If you are looking for new offices or need larger premises, what better time to negotiate with a landlord? The insistence on long, onerous leases with large rent deposits suddenly disappears and for once the boot is on the other foot

Recessions often mean redundancies. This will include really good people who are the victims of lay-offs through no fault of their own. What’s more, people who would never join a small company, either because of a perceived lack of security (often wrong!) or because it doesn’t look good on the CV, suddenly change their views when they are out of work. Also, the salary expectations of people in a recession are fundamentally different. Last, but by no means least, staff turnover in a recession drops dramatically and hence recruitment costs are massively reduced

Competitors going bust or moving away from various market sectors can work in your favour. The benefits of less direct competition is obvious, but much more often larger competitors retrench, reduce their product ranges and hence create opportunities for the smaller company which can make money from niche markets

• Conversely, recessions are the very best times to buy companies and in some cases at genuinely distressed prices (it’s not only the banks that need cash at any cost). But, as always, be careful when buying a company at any price – you don’t want to overstretch yourself and instead of predator become prey

• They say invention is the mother of necessity, so be inventive about your business model. Completely rethink the way you operate and that means ditching any ‘sacred cows’ so, for example, try and make your costs as variable as you can. One good way to do this is to use outsourcing. Think about getting your back office run by others – accounting, personnel, IT and even your debt collection. Many companies do this already so it is hardly a high-risk strategy

• Look at things like your advertising budget and whether you really need PR. Analyse sales commissions and change them so that they are more performance oriented – do not allow people to just coast

• Focus on details. Reassess the profitability of your customers and make sure that you are charging for each and every part of the business. Increase your prices if you are undercharging – difficult but doable!   

• Go for the low hanging fruit – your existing customer base. This is a mantra of mine; it’s less expensive and unpredictable than new sales

• Renegotiate your existing supplier agreements. You will be amazed how much you can save by asking tough questions. Don’t be afraid to change your requirements and threaten to go elsewhere

Conserve your cash. This sounds obvious in these markets but look at your capital expenditure budgets very carefully

Problems should be seen as opportunities and, while it’s not going to be easy, there will be wily entrepreneurs out there who are going to get stronger as the rest fall by the wayside.

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