Boosting profits and performance in a downturn is an opportunity no CEO can ignore because it puts the business in a position of strength to take full advantage of the economy when it turns upwards again. As it will.
As PricewaterhouseCoopers says: “In a downturn, numerous difficulties present themselves - all important, all urgent. A natural response may be to “batten down the hatches” and focus solely on today’s problems. Prudent management is of course necessary, but it is important also to recognise the opportunities presented - to challenge old ways of doing things, to take advantage of weaker competitors, to plan for the changed marketplace that will emerge. Effective management will help ensure your business is best placed to come through the bad times re-energised and fit for the future.”
PwC recommends methods like identifying unprofitable products and customers, cost reduction, effective working capital management, effective performance management and forecasting, having an experience and well-resourced finance team, using appropriate financing arrangements, strategic M&A activity, careful tax planning, communicating with stakeholders and managing talent effectively.
Cherry Birch, an Anderson Grey expert, says it might be a good idea to look at pricing. Remember, any profits from a price increase would flow straight through to your bottom line. Alternatively, the company can reward its best customers by offering volume discounts (for example, 5 per cent off) which take effect at certain thresholds. “Volume discounts should apply to a specific time period and to sales above a specific threshold, for example, a 5 per cent discount on sales in excess of $500k in the 12 months to the end of the financial year. This approach maintains your standard prices and acts as an incentive for businesses to spend more money with you.”
Two more suggestions: reduce giveaways and provide discounts for early payments.
On the costs side, buy better with preferred suppliers. And importantly, cut back on waste. “Whether it's turning off lights when not needed or using a duplex printer, there are many ways to reduce wastage, and at the same time, help the environment. What about your stationery stocks - have you looked at them recently? Maybe you have enough and can postpone that next trip to the stationers! Also some office stationery and supplies can go missing mysteriously. Better control or accountability might be all that's needed. You never know where you might be able to save!"
Another good way is to use zero based budgeting. How to do it? Start with a blank piece of paper to assemble the budget. Focus on the outputs of the business unit - the deliverables - and then work out what is absolutely necessary to deliver these outcomes. That’s instead of using the traditional budgeting method of starting with last year's actuals and focusing on the incremental change rather than challenging the base.
And finally, to increase sales volumes, consider drawing up a profile of your best customers - those that earn you most of your profits. Identify the common characteristics and ensure you know why they buy from you. Then prepare a strategy to attract customers of a similar profile.
According to the consultants at Wedge, the businesses that will be in the best position to grow and increase profits during a downturn are those that have full alignment in the areas of strategy, leadership, team, customers and systems.
How have you maintained profits in a tough market? What strategies have you used?