How to Survive the Recession – the topenterprise guide
You can find dozens of other articles about ‘How to Survive the Recession’ but none gives you the complete picture:
- the real reasons why small businesses have been forced to close and the lessons for survival.
United Kingdom
This article is based on actual research into businesses that have been forced to cease trading and others that have survived, plus a survey of small enterprises that we conducted during the 1991-92 recession.
The results reveal that businesses are not usually forced to close for a single reason and there are probably several top priorities that must be addressed.
Look out for the warning signs
When businesses are forced to close in a recession, it is usually not for one reason but due to a combination of factors –
- High overheads and other external costs
- Strong competition in the market
- Poor returns from R&D, marketing and/or sales activities
- Weaknesses in financial management.
- Smaller enterprises enjoy many advantages but there can be particular risks, especially for less established businesses -
- Having higher unit costs than larger rivals
- Depending on a small number of customers for a large proportion of sales
- Exposure to predatory pricing tactics by competitors who have more ‘financial muscle’.
- Depending on a small number of customers for a large proportion of sales
Generate cash
If you don’t already have a cashflow forecast that you monitor closely and frequently, do it without delay.
Sell-off stock that is just hanging around, keep inventory levels low, collect outstanding invoices promptly and ensure that you have tight control over credit for customers/clients. Also look out for opportunities to seek more favourable terms of credit from suppliers.
Get control of your costs
You also need to know the break-even points for the business as a whole and for each of your main product lines or services. Use these to monitor costs, sales and profits continuously.
- Examine your overheads and other expenditure, find cheaper, reliable alternatives and cut out what’s not essential.
- Go for some quick wins to get everyone involved and motivated.
- Explore ways to share facilities, improve efficiency and minimise your tax liabilities.
- Focus on getting value out of your expenditure.
- Identify key talents and resources you will need in the recovery phase.
Activate your customer base
Established customers are usually more profitable, they could be an untapped source of referrals and it costs time and money to replace those who take their business elsewhere.
One study showed that, out of ten customers who stop buying from a supplier, eight take their business away purely because of dissatisfaction with their purchase or poor customer service. Focus on understanding the real needs of your customers, ensure they value the quality and service you give and they are more likely to remain loyal – and buy more from you.
Update your pricing strategy
Price competition is one of the top three causes of closure for businesses in a crisis, so be very wary of using competitor-based pricing. It hands control of your profit margins to your competitors and they may be able to sustain a price war longer than you can.
Beware cost-plus pricing
Cost-plus is different from retail mark-up pricing; it is for finding your break-even point. Especially if you run a new enterprise, a cost-plus pricing strategy could result in under-selling your products/services and harming profits, or not attracting sufficient demand and depressing your sales.
Price discounts
Avoid across-the-board discounts and never discount the price for what is going to sell anyway! Give discounts for big purchases, not small ones, and use your pricing strategy to drive extra sales volume.
Special offers should not be permanent price reductions. They have value only if they are a real incentive for customers to buy from you.
How well do you know the price sensitivity of your target market and how customers value quality? These give important pointers to a profitable pricing strategy.
Buy One, Get One Free
Remember that Buy One, Get One Free is not the same as a 50 per cent price discount. You maintain the first item at full price, which is really important for your positioning, and it looks like an even better deal because one item is completely free.
Have you tried bundled offers too?
Raise your marketing game
- Our research shows that the marketing and sales factors are particularly critical for survival, including pricing, positioning the business in relation to competitors and targeting of promotions and selling activities.
Whatever steps you take to remedy the weaknesses, do measure the results you get, compare the outcomes and choose the most cost-effective way forward.
If your marketing does require a shake up, perhaps it’s time to bring in new talent from outside rather than trying out low-cost DIY marketing solutions. The situation may even require a change of focus in your business model, a new market, new products/servi ces and new sales/distribution channels.
Implement your survival strategy
Businesses that survive a crisis usually apply several remedies at once. You have to overcome the temptation to try to trade your way out of the crisis, especially in a recession.
First, clear the decks for action.
Surviving a crisis means not doing more of the same but doing things better and smarter. Turn it round and emerge stronger as a result.
About the author
Mac McInerny is a founding director of MC Management & Communications Ltd and topenterprise uk ltd. He has a degree in Law and his formal training includes sales, marketing and financial and management accounting.
Mac has over 15 years’ business experience, advising start-ups and small enterprises from an art business and a health spa to import/retail and small companies in data management and biotechnology.
(This is an extract from an extended article for topenterprise members in the Business Survival zone.)
Footnotes
The survival survey in 1991/2 was conducted by MC Management & Communications Ltd, the parent company of topenterprise.
This article is intended to contribute to informed decisions by business owners, directors and managers. It does not constitute professional advice in all individual cases and should not be interpreted as giving specific advice or guidance.
Before making a decision to take any action you should make your own appropriate enquiries and seek legal, financial and other relevant advice from a qualified person or body. See terms of use for further information.
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