Don't wind up, wind down

Written on the 14th of January 2009 by Matthew Nolan - Good Onya Australia's Business Management Gun

Is all the talk of tough times making you think about winding up your business? Hold that thought!  Before you close the doors, make sure you’ve considered all the options. When the sun does inevitably rise at the end of these dark times, those who have survived and remain in business will be well positioned to expand and dominate their market.

Firstly, make sure you’ve already considered all other options, such as changing business lines, diversifying into additional income streams or reducing costs.
If these modest changes don’t turn things around and closure seems like the only option, it may instead be time for a radical redesign of your business. These massive changes are designed to dramatically cut costs and enable your business to survive until things return to normal. 

Here are some key areas to focus on:

• New customers:  At this point, growth is no longer a priority and may even be impossible to achieve. This means costs incurred in attempting to acquire new customers must be immediately cut back, including spending on both direct sales activities and other areas of your business that provide support to the sales area.
   
• Marketing:  Free marketing will need to replace traditional marketing expenses incurred. The focus of this marketing effort needs to shift to existing clients, using methods such as emails and newsletters combined with regular phone calls. This way you both maximise revenue generating opportunities and customer retention.
   
• Staff:  Making staff redundant is never easy, especially when they’ve been loyal, productive and part of your business for many years. But none of them will thank you if you have to close the doors in a few months, so it’s time to put personal feelings aside and do what is necessary to avoid the inevitable. On the day, be sure to explain the dire situation clearly and that all efforts have been made to avoid this decision. Also make sure you comply with all legal requirements to avoid unnecessary complications afterwards.
   
• Premises:  This is often one of the largest costs for a business, so it pays to consider moving to a cheaper location. Downsizing to smaller premises is another option, as is subletting an area to reduce the cost burden. If suitable, consideration can also be given to moving the business into a spare room or garage of your house, eliminating most of the costs and potentially gaining significant tax breaks.
   
• Debtors:  Offering lengthy payment terms to customers is a luxury that’s no longer possible. It’s time to switch most customers to COD or even payments upfront at the time of placing an order. This will dramatically accelerate cashflow and reduce the amount of working capital required in your business.
   
• Travel & entertainment:  These luxuries must be slashed and replaced with phone calls and the occasional visit with clients. Even local visits can quickly add up in fuel costs, coffees and lunches, so make sure the visit is worthwhile.
   
• Equipment:  Any consideration of new equipment purchases should be put on hold immediately. All existing equipment needs to be reviewed, with only essential pieces retained. Your businesses equipment needs may potentially be further reduced through outsourcing some parts of the business such as manufacturing.
   
• Stock:  Inventory needs to be minimised and streamlined to include only the higher margin items that are selling in the current environment, which is likely to be the lower cost items. Future orders should be placed in light of realistic expectations for future sales rather than historical levels and placed to ensure stock is held for the minimum period of time before converting it back to cash.
   
• Financiers:  If your business has any loans outstanding, it may be timely to visit with each lender to discuss your individual circumstances and ability to meet scheduled repayments. Financiers appreciate customers who are pro-active and upfront about potential problems before they occur. If they see you remaining committed to repaying the loan, they’ll often be willing to lower repayments for a period or to provide a short-term repayment holiday. This way they’ll still get their money back, just over an extended period of time.

No business owner wants to make the above changes, however if implementing them means your business can survive until the sun does inevitably rise - they’ll quickly fade into history as your business commences a new chapter of growth and success.

Matthew Nolan is the host of SME Money Makers on Sky Business and has over 19 years experience in banking and finance, specialising in providing finance to SMEs.