Taking a close, hard look at your business could be the difference between sink or swim. Here SmallBusiness.co.uk and Tom Maclennan, director of Tenon recovery, show you how to stay afloat with our top tips.

Seize the moment

A classic mistake that owner-managers make is failing to take action early enough. There is a temptation to bury your head in the sand and hope that something will come up. Often, many problems are identified, all of which bear a financial cost, but the company only has enough resources to resolve half of them.

Organisational re-think

In a small business there can be entrenched roles that no one wants to challenge. The current downturn may be the first time, such a business will have to take a hard look at itself, and sometimes a good shake-up is needed.

For example, you may have a business that has operated as a partnership, and avoided the issue of incorporation. It may be a sensible decision for that company, but at the same time, it may be a good time to explore options.

Where the money is

It may seem obvious, but many businesses don’t understand where they make money. It is crucial to know the extent to which you can afford to provide discounts on a large order, especially in this environment, where it is important to retain as much business as possible. You also need to know the real fixed and variable costs of the company. Basic, but after a review, there are often more non-essential variable costs than previously thought, leaving more scope for further cost-cutting measures.

Cash is king

The old saying that cash is king has never been more true. You should have short-, medium- and long-term cash forecasts readily available in order to be in a position to squeeze working capital.

It is also really important to be as close to your funders as possible. In the past, it was worth looking at the marketplace for alternative financing, but frankly if you have a good relationship with your bank, you’d be well advised to stick with them because lenders are hard to come by. Although the base rate has gone down, and LIBOR has dropped, bank fees and margins are higher and margins are more difficult, so the net cost to a business of taking on debt is higher.

It’s good to talk

At the best of times, forecasting is difficult, and it’s even harder now. For example, a housebuilder may reasonably expect to sell units with a 30 per cent reduction in value, but it may be very hard to know how many units he will sell. It is therefore crucial that the stakeholders understand the assumptions you are making about the market, so there are no unwelcome surprises. Even when things are going well, it is important to communicate with stakeholders, especially lenders, about investment plans and overall strategy. Otherwise, it may be that much harder to secure funding and approval for essential investments.

Contingency planning

It’s important to challenge assumptions and always have an alternative ...

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