Commercial Profile: Paul Tuiteoutlines a few simple steps to help your company to survive the bad times and take advantage of any upturn

WITH CONTINUING uncertainty in local and global financial markets, together with declining consumer confidence, the challenges for business are many. However, there are several ways companies can manage the downturn effectively.

Businesses need to be flexible and to reintroduce some basic management disciplines which may not have been areas of focus during the heady growth years. With a positive attitude and good understanding of all areas of your business you can use the downturn as an effective change driver.

The current environment also presents clear opportunities for businesses that are prepared to embrace them. Set out below are 10 suggestions which will help to keep your business on track in these difficult times and to leave your business well placed to succeed when the market environment improves.

Take a closer look

The goalposts have been moving and your market may have changed significantly in a very short space of time. You need to identify key contributors to your profitability and consider how your key customers, suppliers, competitors, products and markets will be affected by the downturn. Once you have gathered this information you should use it to reassess your strategy and once this is done you should clearly communicate and share your plan for dealing with the downturn with your management team.

Cash is king

With cash in short supply it needs to be an everyday priority. It is important to understand and carefully monitor your obligations on your existing credit facilities. A prime focus should be on minimising investment in working capital and, if necessary, realising cash from non-core assets. Helpful actions can include making collecting money as important as winning new business, streamlining order-to-cash processes, reassessing the relevance of discount arrangements and investing in credit control. From a manufacturing perspective you should seek, where possible, to produce to order, minimising working capital.

Review costs from a zero base

Cost control is now a necessary obsession for all businesses. In good times, cost control was frequently subordinated to the imperatives of growth and development. In a downturn, cost control and cost reduction must be a prime focus of management. In the short term, the quickest route to cost reduction is to target discretionary expenditure - segregate the essential from the desirable and limit outgoings accordingly. The next step is to monitor headcount levels and to subject any recruitment to rigorous scrutiny.

In the medium term, cost reduction must come from examination of the present cost base and an assessment of the value derived from each significant cost category. This review should consider the level of cost in all areas of the business and then seek to identify where savings are possible.

Take a hard look at procurement, at inefficient work practices, at waste. Another key action at this stage is to get cost consciousness throughout the business; get people involved and reward measurable contributors.

Reliable management information is key

Now more than ever you need the right management information and budgetary systems. Decision-making needs to be speedy and based upon facts: you cannot afford a complex and lengthy decision-making process. Clearly defined key performance indicators (KPIs) are essential to ensure profit improvement initiatives effectively add value; you will need to communicate KPIs and then incentivise your people for delivery on them.

Once you have defined the critical KPIs for your business you should consider how often you receive information on those critical areas and what level of confidence you have in the information you receive. Is your senior management team updated frequently enough in order to make the right decisions? If not, what changes are necessary to your reporting structures and timelines?

Plan for different scenarios

Given the volatility that exists at present, all businesses should model a range of financial, operational and workforce scenarios that reflect the potential impact of the downturn. This will enable you to adapt quickly should any of the key vulnerabilities in the company's business become reality.

Recognise the value of your people

Regular and clear communication with employees is key to their engagement. It is important to ensure you engage on a regular basis with your employees and motivate and develop high performers. You also need to watch for pressure points, for example, your finance team may need extra help to get through its increased monitoring and reporting requirements. The downturn can also represent an opportunity to secure strategic new talent that may become available.

Take all stakeholders with you

Managing stakeholders well in difficult times is crucial to executing a winning strategy. You need to invest time in relationships with all stakeholders in your business (banks, employees, shareholders, suppliers and customers). Take control of the agenda and maintain open and regular dialogue with all of these parties to ensure they understand the impact of the downturn on your business and the actions you are taking to respond.

Careful tax planning is essential

Don't lose sight of the importance of careful tax planning while dealing with new management challenges. While still ensuring your organisation is fully tax compliant, it should be possible to improve your cash-flow position by reducing or deferring tax payments.

Opportunities include making maximum use of losses in calculating preliminary tax payments; availing of VAT relief on bad debts; and ensuring all available deductions are claimed.

At a more strategic level it is possible to take advantage of falling asset values. For example, domestically low asset values facilitate tax-efficient succession planning. From a human-resource perspective, tax-efficient remuneration strategies and cost-effective pension provisions are now more important than ever. Likewise, the tax implications of any workforce reduction which proves necessary - for both the business and the individuals concerned - should be closely examined.

Take advantage of M&A opportunities

As vendor price expectations fall and forced sales become a factor, M&A opportunities will present themselves. They will be more favourably priced than in the past but there are particular skill sets required in acquiring distressed businesses. Experience shows that if deals are effectively managed in a downturn there is the potential to generate above average returns once trading conditions return to normal.

Have you explored opportunities to acquire strategic targets and prepared an accurate assessment of their risk-and-reward profile? Do you have finance available for M&A purposes? Businesses need to answer these questions now so they are ready to exploit the opportunities that may arise at short notice.

Act decisively

With increased uncertainty and volatility it is important to take decisions quickly. This particularly applies to cost reduction and M&A activity, but not exclusively. Businesses should also revisit their existing investment programmes to decide which initiatives should be stopped or deferred and to identify which initiatives may even be accelerated because they can be more cost-effectively completed in a downturn.

If change is necessary, don't sit back and wait; the winners will be those who position themselves now to best survive the downturn and then take advantage of the upturn.