Deborah Glen The risks of business failure increase in a recession.

If we believe what we read in the media, the UK may be heading for recession. It is at times like this that many businesses panic, pushing sales staff harder, breaking lines of communication and confusing the focus of the business. What they should be doing is looking inwards and setting in place the correct procedures for the business to service, regardless of the climate. Adopting an inward focus can effectively add up to 25% gross profit to the bottom line of your business.

Ask yourself some soul-searching questions. Are you satisfied that your internal procedures are following industry best practice? Are the goods and services you are supplying and buying providing both you and your clients with value for money? Not sure? Here are some areas that you should be considering.

Review sales strategies
Sales are key to all businesses. How long does it take you to bring on a new customer? As part of your review strategy, consider the following:

  • Ensure you have contracts with all of your clients.
  • Know when are these due for renewal.
  • Have you negotiated the contract, or just accepted the seller's terms?
  • Have you good relationships with your current clients? If not, why not?
  • Are your clients costing you money?
  • Do you manage relationships pro-actively and advise customers of other products and services you can offer?
  • Do you work in partnership with your suppliers?
  • Are there opportunities for reciprocal trading, thus increasing sales?

    In a bid to obtain sound business, smaller companies often accept unreasonable payment terms when dealing with larger clients. They may even be shy to ask for a decent rate for the job. This often impacts on the cash flow. You have a healthy order book, but your bank balance suffers. If you do not bring this area of your business under control, your company could fail. Ask yourself the following:

  • Are your customers paying on time? If not, are you charging them interest for late payment?
  • Do you offer early payment discounts to improve payment terms?
  • Do your customers pay by BACS?
  • How many invoices do you distribute each month?
  • Can you consolidate your invoicing?
  • Have you considered using a purchasing card and offering it to your clients? (This could save on credit checking the smaller client?)
  • Have you considered factoring your invoices?

    Supplier relationships
    It is important to have good relationships with your suppliers. After all, you are dependent on them. But the way you do business with your suppliers could be costing you more than you think. In an average business, the process of raising a purchase order through to invoice payment can cost the business, on average, £80 per transaction. Multiply this by the month's volume and it can stack up

  • Have you got back-to-back agreements with your suppliers?
  • Do you negotiate business on your terms and conditions or are you supplier-led? Could you be vulnerable if problems arise with the relationship?
  • Are you paying on time?
  • Do you negotiate early settlement discounts?
  • Do you pay by BACS? If not, are you paying interest for late payment that you can ill afford?
  • How many invoices per month do you receive?
  • Could you consolidate invoicing?
  • Have you considered using a purchasing card for small value purchases?

    What about employees?
    The major resource in many businesses is the employees. You must look after them, especially in a time of business downturn. Ensure they are happy in their work, and don't forget that every member of a happy team is a sales person for the company. Consider the following:

  • Do you have the correct complement of staff?
  • Is your staff doing what you employed them to do, or are they bogged down in administration?
  • Is there a way to release your staff from these administrative burdens so that they can focus on the job they were employed to do?
  • How many members of staff are contributing to the business?
  • How many are doing a job that adds no value at all to the business?
  • Have you considered outsourcing none core activities?

    Processes and policies
    When was the last time you looked at your internal processes? How have they developed since you, or members of your staff, introduced them? Often people change the processes to meet their own needs. However, this may be costing you money:

  • Can you audit your processes, be it manufacturing, ordering, payment, distribution?
  • Do you know what the cost of doing business with each of your customers really is?
  • Do you get accurate management information from all the processes within your company to enable you to make informed decisions?
  • Is the process still necessary?

    Your stock position and how you have changed your stocking policies over the years are also relevant. With modern ordering techniques, it is no longer necessary to keep as much stock as previously, or to hold different types of products 'just in case'. Many suppliers can now deliver within 24 hours and will take on the burden of keeping a wide range. Some questions here are:

  • How often do you review your stock position?
  • Do you concentrate on the stock of component parts for the products you manufacture only?
  • How much money do you have tied up in unnecessary stock?
  • Do your suppliers stock on your behalf? And do they carry the cost?
  • Could you release money and space by reducing or eliminating stocks altogether?
  • Are you holding redundant stock that will never be used, but is costing you to store?
  • Could you use off-site storage?
  • Could you use a managed storage and fulfilment service, freeing up warehouse space, and reducing the need for staff overhead and the cost of mailing?

    Good suppliers are worth their weight in gold, but you need to ensure that your suppliers are providing value for money. Areas for consideration are:

  • identifying your major areas of expenditure
  • benchmarking the major areas of expenditure, ensuring you are obtaining value for money (have you the expertise to undertake this role?)
  • consolidating some of your major spend areas and achieving economies of scale
  • how many suppliers are on your books and can they be rationalised?
  • what more can your suppliers do for you?
  • can they help you to grow your business?
  • what does your supplier do for you, that you could do for your clients?
  • are you paying too much for essential services, such as accountancy, cleaning, energy, and office products? (Have you the time and expertise internally to undertake this role?)

    By streamlining the way your business operates it is possible to reduce head count, getting the remaining staff fully focused and working in the capacity for which they were employed. Suppliers can deliver an improved service, while creating a far more effective bond between you and them. Factoring and invoice discounting can improve your cash flow, as can negotiating better rates and payment terms with your own clients. Creating your own purchasing policy, rather than accepting that of your supplier can give you greater control. The list is endless, but one thing remains constant: taking an inward look at your business can be lucrative, and may provide you with a useful edge.

    Deborah Glen is a director of CY Associates Limited which provides support in procurement management and consultancy, Tel: 0870 2402904, www.cy-associates.com

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