Although companies could be concerned about a eurozone Armageddon, no matter what the outcome they are going to need to ensure survival for that period of austerity that is certainly likely to characterise the following decade.
Although growth is desirable, and it has been the aim for many businesses, a far more realistic objective much more uncertainty would be to stay in business to the next five-years.
Arguably the obvious way to achieve perpetual business survival is always to avoid running out of cash. This involves examining all cash commitments and where possible turning fixed costs into variable ones in an attempt to reduce the breakeven amount of sales required to cover overheads and fixed obligations. All too often hitting sales targets can just be achieved in the expense of margins. The flexible business design means that you don’t need to take on unprofitable work.
Long-term fixed obligations may be anything from fixed-term rents, hire-purchase or lease agreements, repaying loans, servicing interest, supply contracts and staff employment. The common examples where companies have on such commitments usually relate to: offices, plant and machinery, IT equipment and software, vehicles, signage, furniture, printers and photocopiers, mobiles and telephone systems.
Most companies also do not cancel or perhaps review contracts that automatically renew, for example: IT equipment and plant leases, life insurance coverage, medical policies, employee benefits, subscriptions and membership, servicing and maintenance, office and window cleaning, sanitary towel and waste removal, portable appliance testing (PAT), health, safety and fire extinguisher inspections far more.
A recent example would have been a company that continued paying GE Capital for seven years following minimum three-year term of the lease purchase agreement to have an expensive computer server. GE Capital has not been at fault as his or her agreement stipulated ninety days notice of termination following the minimum term. It was irrelevant that this server wasno longer being employed, no writeup on expenditure ended up carried out to focus on this and plenty of other instances of unnecessary payments.
The key message is usually to review every payment and appearance whether it is necessary and you’re not being overcharged.
While it sounds counter-intuitive, businesses often bring in more revenue by reducing sales. It is worth looking in the quality of contracts and also the quality of shoppers. Some clients are more trouble compared to worth, or consumes more time than might be justified or perhaps simply not profitable. Reducing sales can often mean a company needs fewer staff, lower overheads and fewer resources for example a smaller factory or office. Generally, lower sales imply that you do not need the maximum amount of working capital occupied in funding the company.
The gains advantage from focusing on solely those contracts and customers which provide an adequate profit, that pay well and pay on time could be considerable. Gross profits are increased, overheads are reduced by without needing to chase payment and fewer cash is was required to fund pre-sale payments and post-sale credit.
While many private householders appear to have got what it’s all about about cost comparison and today regularly switch energy, cellular phone, internet and landline suppliers, much too many companies are focussed on chasing sales (and tails) to evaluate costs and look for ways to scale back them.
Any review should likewise look at other strategies to cut spending. Huge savings may be made to cut back travel and communications costs for instance using internet-based phone and video chat facilities like Skype or VOIP services. Most landline cell phone numbers can now be ported with an internet service provider, some charging as small as 1 a month per number and much more as a fixed cost for everyone outbound calls.
It could be tempting to save cash at any given time by entering in to a lease or rental agreement. Paying such contracts could become a real burden if business declines, however. Indeed a lot of companies are finding themselves linked with long-term contracts they don’t need.
Business turnaround specialists usually are having to adopt a triage strategy to cost cutting as they usually be earned when a firm is running out of cash. It is rarely ever too late since they can crystallise contract termination liabilities inside a Company Voluntary Arrangement if your company can’t afford them. However it is better than take action early and conduct regular reviews as part of the programme of continuous business improvement.