But there is a lot that entrepreneurs can do to maintain and even increase their profits during difficult times, says Jeremy Lang, regional general manager at Business Partners Limited.
With a proactive, entrepreneurial approach, business owners can use the tough periods to streamline their businesses and reach new levels of efficiency.
Sometimes a major change of direction is called for, but more often than not the trick is to make small improvements to various aspects of the business. Together, these tweaks can add up to boost your profitability to surprising levels.
- Drive down your production costs: Consider which processes in your operations can be streamlined or automated. Study every aspect of your cost of sales to eliminate inefficiencies, and do so continuously.
- Look for alternative suppliers: While there is a lot to be said for building steady business relationships, “loyalty” to one or two key suppliers is just as often the result of habit. Shop around, even if it is just to gather information that can help you negotiate better deals with your existing suppliers.
- Reconsider your labour costs: Usually the surest way to bring down your overheads is to take a set of pruning shears to your salaries and wages however this should never be done outside the ambit of the law nor without due consideration of other available cost saving options. Do you have the right number of staff members for your operation? Can your team be structured more efficiently? Can you still improve productivity? Do you have the right processes in place to deal with the non-performers or under-performers in your staff?
- Squeeze your working capital cycle: The idea here is to get your clients to pay you as soon as possible and to take as long as possible to pay your suppliers. This will increase the supply of cash in your business and boost your profitability. It may require careful negotiations with your suppliers, but it may also be as simple as asking them for the first time. The same goes for your clients, who may be quite willing to pay you sooner if you offer them an early-settlement discount.
- Don’t stop marketing: Often the first thing business owners do when they hit hard times is to cut marketing spend. It is good to try to cut inefficiencies out of your marketing effort, but resist the temptation to stop marketing until things get better. Improving the marketing function in your business does not need to cost the earth either. Social media has made it possible for the smallest start-up to establish a substantial virtual presence.
- Sell more: Either look for new customers in markets that you do not reach yet, or sell new goods and services to your existing clients, or do both. Localised businesses can tap new, wider markets by improving their online presence, for example.
- Harness the latest technology: Keep a constant eye on the latest technological advances, any number of which can help you to increase your efficiencies and effectiveness and ultimately your profitability. These technologies can assist in how you produce goods and services to how you engage with your customers.
- Don’t stop innovating: Businesses that stay the same are the ones who succumb during recessions. A business that is able to change, on the other hand, is much more able to survive a tough period and to thrive in good times. Innovation does not only apply to coming up with new or improved products, but also to the design of better processes and systems within a business. Entrepreneurs must constantly tinker and try out new and better ways of doing things.
- Plan carefully and stick to your budgets: Many of these ideas entail a certain amount of spending before they pay for themselves, which is difficult in tough times. The only way to overcome this problem is to work according to strict plans and budgets, which are important in the best of times, and even more important during economic downturns.