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30 March  2008 ~

recession-cartoon.jpg The “R” word is everywhere, the majority of Americans feel that the country is already in a Recession.  Even if it technically isn’t a recession, this perception can unfortunately become a self fulfilling prophecy as consumers scale back their spending, which in turn creates a ripple effect downward on the economy. In the face of economic uncertainty, some businesses will panic and falter, while others will stay on top of their business and sail right past their competition! Which one of those businesses will you be? 

Let’s start by asking a couple of questions…. How are you currently getting an overview of your business? Besides watching the cash, do you really know how your business is currently doing? Are you gaining momentum or losing steam in your business right now?  What actions are you taking in response to the above questions? If you can’t instantly respond to these questions, given the changing economic conditions, how can you tell whether you are winning, losing, or headed for disaster?

Remember the old expression, a rising tide raises all ships?  Well, a receding tide grounds unprepared ones!  Metaphorically speaking, that is what you have to deal with in terms of a possible recession.

What should you do to prepare?  The first step is to identify areas of potential weakness within your company’s operations and financial processes

By exposing and focusing on actionable weaknesses, you will provide your business with the greatest potential to uncover the most effective opportunities to protect your profits in an economic downturn.

1. Highlight areas where process can be streamlined and cost savings can be realized

Let’s clear something up right off the bat… the term Cost Savings is not necessarily a euphemism for headcount reductions.   Cost savings if planned out properly can simply eliminating wasteful activities, processes and costs, without reducing heads.

Focus on inefficiencies and redundant processes.  For example, if one were looking at the write offs for Bad Debts, an inefficient process might be poor credit monitoring procedures which could lead to large bad debt write-offs.  Another ineffective process could be credit approval overrides increasing credit exposures.  Either way. with more effective credit authorization procedures, you can reducing bad debt write-offs which in turn yields an increase cost savings.
2. Link business strategies and change imperatives to operations to ensure the organization is consistently focused on driving measurable improvement around key performance metrics
A small group of key performance indicators (KPI’s) aligned to your strategic plan are incredibly important to your business.

A powerful KPI should be:

a) Easily measurable (can be financial or statistical)
b) Linked to desired business outcomes
c) Generally accepted

Three KPI’s that most businesses track include Total Revenue, Gross Margin and Cash.  However there are also many more such as; Sales Returns, the trend of DSO as well as Headcount to name but a couple more.
3. Outline the key initiatives to focus on to increase shareholder value and build competitive advantage

As businessmen and women, you should have your finger on the pulse of your business.  Plan out your strategy, review it for practicality, test it, tweak it and generally do what you can to be prepared for whatever economic conditions may be out there.  Essentially, you need to create your “business roadmap” to validate the business activities you plan and minimize the “overwhelm factor” as well as any other business uncertainties.

On example might be to measure your product/service profitability?  Do you currently do this?  If not, you are risking wasted time and dollars on low-profit products, neither of which builds a competitive advantage or adds to shareholder value.

Let’s look at it from another direction.  Start thinking out of the box.  Embrace Web 2.0 and adjust your Marketing Budget – Many of the components of Web 2.0 are low cost or no cost, yet still provide a significant (if not better) opportunity for you to reach and communicate with your target customer as opposed to some of the old, expensive traditional ways.  This is an opportunity for you to build a competitive advantage while still enjoying cost savings.

4. Provide insight into customers, products and finances throughout the order to cash processes

This is a very powerful, yet many times, an ignored concept.  Most organizations follow the ready-fire-aim approach and try to run their business without having a good grasp of the strategic roadmap or the major obstacles the organization is facing.  One of the best ways to overcome this and provide significant insight is through financial & operational analysis.  This allows you to most effectively convert your raw data into strategic business information.

For instance, what kind of analytics to you perform on your selling process?  Do you know how many active customers you have? Can you determine if you have too many low-profit, low-volume customers that take too long to pay?  When you have analysis of this type, you can better shape both your selling process as well as your manage your cash more effectively – both will add to increasing your bottom

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