Preparing for the rollercoaster ride

25 August 2011

Standards and Poors has downgraded America’s AAA credit rating, local and international markets are volatile and easily spooked, picking changes in interest rates is more akin to crystal ball gazing, the carbon tax is coming, consumer sentiment remains tight and no one is feeling particularly confident.

Welcome to the 2011/2012 financial year.

Over the next 12 months business will be working with a range of domestic and external influences that will cause uncertainty.  But these swings can be a benefit as well as a headache – but only for strategically sound businesses. 

Most SMEs are well downstream from major economic triggers.  We don’t cause the problems but are affected because of what is happening to larger businesses, the economy, and consumers.  Some industries are more impacted than others.

Strategy to deal with changing conditions

Expecting business conditions to be ‘more of the same’ over the next 12 months is wishful thinking. If your business strategy is simply to turn up, work hard, and expect business to come to you then you are likely to be disappointed. 

If you have not already, it’s time to do something different.  When business gets tougher, ‘me too’ businesses come under pressure. 

Don’t follow the herd

A ‘me too’ business is one that simply replicates what everyone else in their industry or sector does.  You work on the basis that there is a consistent and proven formula and if you follow the formula everything should work out. 

Sounds ok in theory (and says a lot about human nature) however the problem is that you are doing nothing to differentiate yourself in your market.  When times get tough, the lack of differentiation may leave your customers with no compelling reason to continue doing business with you.

Business, in particular small business, needs to be more strategic and focused on the core goal of creating a sustainable business and a sustainable position in the market they operate in.  In a buoyant market a business can survive without a strong business strategy; in a volatile market, demand can be patchy and in some cases depressed. Most SMEs are not equipped to compete on price thanks to the lack of the capital reserves or the economies of scale that larger organisations can take advantage of in tough times.  

Riding through the storm of uncertainty

Getting the fundamentals right in your business will set you in good stead to survive a protracted period of uncertainty. If your business strategy is quietly gathering dust on the shelf, then now is the time to revisit your business basics: structure, cash flow, liabities and the knowledge you have within the business to drive it forward.

If you haven’t developed a strategy for your business, be prepared to spend time on the business (not just in it) so that you have a roadmap to help you navigate through the less-than-certain months ahead. Your strategy should flow into your business plan and then be reflected in your operating and cash flow budget for the year.  Typically, your business strategy will contemplate your end game – be it a sale of the business or some other exit event.

Getting your strategy in place and in good stead

Good businesses always have a clear strategy in place. For the coming year it will be more important than ever; it will separate the successful from the strugglers.

However for some business owners it can be difficult in challenging times to take your head out of the business to focus on the business. For advice and guidance on developing or refining your business strategy, contact us on (02) 9957 4033 to book an appointment. You can also drop us an email via our contact form.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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