SUE HIRST Protecting your business from volatility by Sue Hirst Photo Credit: Noaa (Unsplash) When things are going well, it’s easy to get lulled into a false sense of security, to think that the good times will keep on rolling, and you can keep spending money at the standard rate. It pays to remember that all economies are cyclical, and downturns are as inevitable as upturns. Many business owners make the error of building and planning their strategies around the “good times” when sales are high. All businesses should have a plan to manage through tough times and protect themselves from volatility. Here are some tips for building business resilience, to protect your business through volatile times. BUSINESS MODEL IMPROVEMENT A business model is the way you operate, for example, how you deliver your product or service and how you fund your business. Your business model can be a ‘fluid phenomenon’, constantly tweaked to achieve maximum efficiency and performance. The right model can make business life smooth, whereas having the wrong model can result in constant struggle. Few business owners pay enough heed to their business model. It’s worthwhile engaging the help of an advisor who understands business models if you need help understanding your business model or defining it. We often hear “that’s the way it has always been done” or “that’s the way we do it, and it works.” This may be so, but it’s worth asking - could you do it better? Could you fine-tune, add, or maximise the higher profit-producing areas and reduce or delete the low-profit ones? 46 OCT/NOV 2022 Could you find more efficient ways to distribute, assemble or deliver your product? And thinking about staff, could some contribute better in other ways? SWOT ANALYSIS (STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS) Look at your strengths and how they help you compete in the marketplace, and ask yourself and your team how you can build on them. Look at your weaknesses and consider the costs associated and how you can reduce them. Opportunities can be found in places you may not think of; for example, in our business, ‘cloud commerce’ has shattered geographical barriers, so we’re offering services to geographical areas previously impossible. Threats can be environmental and beyond your control (think COVID!). However, if you consider them and put in place appropriate risk management, you may be ahead of the competition when the next disaster happens. CONTINUOUS IMPROVEMENT We can all find constant improvements that, when added together, make a massive difference to business efficiency and results. The key to constant improvement is listening to staff, customers, suppliers, shareholders, and advisors. The best way to capitalise on continuous improvements is to have robust systems in place that enable absorption of improvements. That way when you come to sell your business, you’ve built a solid asset that can be handed over to a buyer and odds are you’ll get a premium price. COST MANAGEMENT Direct costs are those that are necessary to deliver a product or service, such as service labour or purchase of product, and are the biggest target for improvement. Research your industry and technology to find better ways of operating. A small improvement in direct costs can have a huge impact on your bottom line. Don’t cut ‘muscle’ in business, such as effective marketing or good staff, but look for ‘fat’ or resources that aren’t delivering value. CASH FLOW MANAGEMENT Many businesses have had a rough couple of years and are getting to the end of their resources. They may have had to use cash reserves, borrow, or reduce overheads. If you’ve experienced cash flow squeeze for the past couple of years and can’t see light at the end of the tunnel, it may be a good time to consult an expert in finance. They can help you to facilitate negotiations with suppliers, the ATO and banks. If your business is impacted negatively by a particular sector of the market, you need to keep a close eye on cash flow. A good indicator of cash flow is calculating liquidity.
