How your business can survive the looming economic downturn

The worst thing Australian businesses can do during the “new GFC” conditions they will face over the next year is batten down the hatches and just try to survive.

Signs of economic slowdown in China, combined with a predicted poor retail result over Christmas and concerns over carbon tax impact, mean 2012 will be an incredibly challenging one for many businesses – I believe tougher than the original GFC aftermath.

Whether or not we fall into recession is irrelevant, business is facing extremely tough conditions. We can see among clients that bank finance is becoming tight again and credit rationing will be a factor.

The worst thing a business can do is approach this period with a “bunker down” attitude.

You need to treat tough times as an opportunity, and be doing something different to stand out from the competition so you can continue to grow and source capital to fund the business.

The herd will panic and start cost cutting and laying off staff like they always do.

Those more likely to come through the tough conditions in better shape will be the ones tightly managing their working capital, continuing with research/development and innovation, showcasing their “demonstrable” unique selling proposition and standing out from the crowd.

These are the businesses that will win the competition for hard-to-find credit.

How to survive the economic downturn

  1. Don’t just compete on price when things get tough
    The trouble with relying on discounting is you don’t know your competitors’ cash reserves. Don’t blindly go down this path not knowing if you can outlast your competitor.
  2. Be unique, have a real point of difference (think Peter Alexander)
    Who would you rather be coming out of the next economic downturn – the business still discounting its old products or the one introducing new products at a higher margin to the market?
    Keep the focus on innovation through the economic downturn.
    I’d rather this than be slashing my throat with the herd.
  3. Aggressively manage accounts receivable, inventory and payables and seriously consider selling non-core assets/divisions or surplus assets.
  4. Seriously consider sale and leaseback options for property and other assets to bolster cash flow.
  5. You may also need to consider a merger in order to not only survive but come through the next period in better shape than your competitors.
  6. Focus right now on stress testing your business.

It’s a sobering thought that, of the more than 16,000 Australian companies likely to become insolvent in 2011 (based on FY2011 ASIC stats of 14,566), a significant number could have been saved if they had sought the right help early enough.

The current economic downturn has dramatically increased the speed at which business conditions can change.

This forces astute leaders to rely more than ever on risk management strategies to protect their businesses.

Regardless of the position your business is in, it’s essential to be undertaking detailed financial modelling and “what if” scenario testing to gauge how sudden changes in market conditions will affect your business – and more importantly, what initiatives management can deploy to combat these challenges.

So what is your business doing to stand out from the crowd in 2012? We’d love to hear.

Michael Fingland, is Executive Director of national business transformation and turnaround firm Vantage Performance and was awarded Australasian Turnaround Professional of the Year 2011 by the Turnaround Management Association, for his work with fast growth and troubled companies. 

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