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Small business owners warned about Credit Crunch

SME businesses across Berkshire have been feeling the effects of the Credit Crunch for some time, with the difficult trading environment compounded by high energy and fuel costs, a freefalling property market and gradually increasing unemployment.

"Several of our clients are starting to see a slow down in business" reports Trevor Wilson from The FD Group, providers of part-time finance director services to SME businesses in and around the Reading area. "The current turmoil on the world markets and recent demise of serious financial big hitters such as Lehmans and Merrill Lynch, not to mention the bail outs of several major European and US banks, has only served to dent business confidence further."

"Rising costs and reduced spending can quickly generate a significant downward business momentum and we are advising business owners to act quickly before the rot really sets in and businesses go under."

So what can business owners do when faced with possibly one of the most difficult trading environments for the past 60 years? Trevor advises the following:

Take control of the situation now - don't adopt a "wait and see" attitude, any delay could be the difference between remaining in business and closing the doors a year down the line or sooner.

Addressing costs is essential - any action taken here feeds directly to bottom line profit and more importantly cash. Categorise overheads from business critical to non essentials. Consider alternative (cheaper) sources of supply or outsourcing. Is any property surplus to requirements?

Prepare projections - if there's going to be a problem, the sooner you know the better "Right" Having projections based on sensible and realistic assumptions puts business owners back in control and helps decision making. Projections are also essential if requesting additional third party funding.

Don't focus on sales - Too many businesses look to new sales initiatives to counteract downward pressures. This can be a recipe for disaster as there are likely to be up-front costs, initiatives take time to implement and diverts attention from the core income streams. This approach lacks certainty in difficult markets when certainty is at a premium.

Cash is king - In most businesses, there are opportunities to improve cash flow right through the sales process, from when an order is placed to the debt collection once a sale is made. Are there any redundant fixed assets or slow moving stock that could be sold? Are there opportunities for sale and leaseback?

Communicate with stakeholders - Don't bottle up problems until it is too late. Most stakeholders in a business such as customers, suppliers, the bank, are happy to help if they can. They may have ideas and solutions you may not have thought of.

Finally, look after employees - Wages and salaries are normally a major cost so any cut backs will impact on those remaining with the business. Maintaining employee morale is not easy against a background of colleagues leaving and difficult trading conditions but it is essential to find ways to retain, incentivise and motivate key staff.

Trevor Wilson: "It may be some time until we see exactly how badly the Credit Crunch will affect businesses in the Reading area. However, with the benefit of a few grey hairs and the experience of a previous recession under my belt, I can say that those business owners who take early remedial actions will be best placed not only to survive the economic downturn but also to take advantage of, and profit from the recovery that will inevitably follow. Act now it's not too late!"

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