WE’RE in the dawn of a new year, an opportune time for entreprenuers to strategise on ways to combat the challenges and uncertainties they face in the current business environment. The number one priority is to survive and make a profit, but there is no certainty that this will happen. What is certain is that customers are spending less and focusing on more critical items, so you must ensure that your product or service is one of them. Small businesses, like others, must bolster their defenses and channel their energies into surviving 2010 and minimising the impact of the economic slowdown. Sunday Finance brings together some strategies that small business owners can employ to protect their businesses from the vicious tailwind that is the great recession.

Collect, Collect, Collect

Dr Sandra Palmer-Peart, lecturer on entreprenuership at the Mona School of Business and CEO of computer firm SSP Aptec said one of the most critical strategies firms should employ is to ensure that they never run out of cash. “Businesses must be on top of their cash flow. You cannot operate blindly. You have to be very clear on your cash position,” she said. She explained that managing cash flow has little to do with profitability or sales, because a business can be profitable on paper, but not have access to the cash it takes to continue operations. Cash flow, has everything to do with staying in business as it ensures that the company is able to take care of its short term obligations, such as purchasing supplies. “The day you run out of cash is the day you cease to do business because you cannot do business without cash,” she said. Therefore, “Collection has to be the number 1, number 2 and number 3 priority,” she added. Palmer-Peart noted that this focus has to be shared by everyone from the sales person to the manager. “The entire company has to realise that once you sell, if you don’t collect, you have made a gift,” said the CEO.

Don’t wait too long to cut costs

Palmer-Peart said for her company the focus is on managing expenses. “You cannot have expenses that you cannot justify,” she said. It is nice to look grand, but pay attention to the state of your finances, she avised. Does your business really need $500,000 worth of high tech equipment, or a fancy leased office and million dollar payroll? Can you forego the pricey Television Ad until you really can afford it? As a small business, you should also try to save on costs that are unavoidable, for example utilities. Try utilizing toll-free calling whenever possible. Make sure that you have the toll-free numbers of your vendors and suppliers, if you know the URL of the company you can go to their website’s ‘contact us’ page to get the toll free numbers.

You can also save on electricity bills by installing energy saving lightbulbs and encouraging employees to turn off their computers and lights when they are going to be away from them for a period of time, say during lunch. The air conditioning can also be turned down or off, if employees wear cooler clothing, short sleeves and no neckties. You will still have to pay the electricity bill and the new 10 per cent General Consumption Tax (GCT) applied to it, but 10 per cent of $200,000 is still less than 10 per cent of $500,000.

If you can, use fax and e-mail instead of mail. Compared to snail mail, you save on postage, envelope, paper, and mailing time and get instant delivery.

Protect your margins

While you cut costs and streamline your operations, small business owners are also advised to protect their margins of profit vigorously. Now is not the time to be giving away your profits. “We watch our profit margins and ensure that all the transactions are profitable,” Palmer-Peart said of SSP Aptec. Experts say a five per cent increase in costs can result in a 20 per cent reduction in profit so this action is tied to your cost control strategies and your receivables collections.

Build customer loyalty and plan for recovery

“Try at this time to be there for customers,” Palmer-Peart advised. In a company such as computer supplies, sales may not be the best way to do this, especially if the customer cannot afford to pay. However, customer support for those who already purchased your product is key. Unfortunately too many local companies do not understand the importance of taking care of the customer, even during hard times. “When things get better, you know you will be at the forefront of their minds,” said Palmer-Peart. In this way, you are also preparing yourself for the recovery. According to John Chambers, Chairman and CEO of Cisco Systems, businesses should start planning as soon as possible for how they are going to gain share and differentiate from peers. He believes the slowdown is a good time to build even stronger relationships and differentiate with your customers.

Focus on core business

It seems simple enough and the term is bandied about in business circles, but the advice is never more relevant. If you don’t know what your core business is, now is the time to identify and define it. You can’t be all things to all people, especially during a downturn. “You have to be very focussed in your customer sales and the customers you decide to serve. It’s going to be a challenge to try and serve the needs of all the different types of persons. You will not be able to do that well,” said Palmer-Peart, reccomending a “focused approach on customers who appreciate what you bring to the table.”

You can provide tailored products and services. The goal is to redirect the mindset from ‘who has the lowest price’ to ‘who provides the best value’ so that customers can not only increase their purchase size, but the value of the purchase.

Be honest with yourself, and your stakeholders

Hard times are ahead, and you may not be able to meet all your obligations on time. We understand the urge to hide, but this is one of the worst things to do. When delinquency seems inevitable you should face the music, otherwise the damage to your credibility and to your business, may be irreparable. “Now is not the time to dodge phone calls and pretend that you don’t owe people,” Palmer-Peart warned. “Take up your phone and call them and if its that bad you should get in your car and eyeball them and explain the situation.” She said telling the “full truth” to your suppliers and creditors may actually reveal ways in which they can assit you through the difficult period.

This honesty should also be communicated with your staff, particularly if there will be job losses. “There is no easy way to do that. You just have to be honest and direct and speak your truth openly,” advised the CEO. But this honesty must be tempered with good taste and consideration for those to be let go.

“Help the employee as best as possible if you have to part ways,” she said.