Economic indicators are pointing to tough times ahead as the inflation rate remains high and the Reserve Bank persists in lifting the official cash rate.
Tough economic times are a stark reminder to all business leaders they need to build resilience to survive downturns.
Tompkins Wake commercial partner Bryce Davey, Deloitte partner Jono Peart, and Backdoor Managing Director Geoff Hutchison have over 50 years’ experience between them. They know how to build a resilient business and share five business rules for getting through a recession on Tompkins Wake’s new podcast, Off the Clock.
Recognise early warning signs
The sooner you know a downturn is coming, the more time your business has to prepare.
“Business decision-makers often rely too heavily on economic data or GDP, but this data is always retrospective, it's always three months after the fact. You’ve got to stay ahead of the curve. To spot the downturn early on, you need to look at what’s coming down your own industry pipeline. Is revenue slowing? Are enquiries down?” says Jono.
At Backdoor – New Zealand's largest surf, skate and street wear business - Geoff saw the 2007-2008 Global Financial Crisis (GFC) coming by constantly monitoring the factors that drive his business.
“As the GFC started to emerge, we kept a close eye on our daily sales numbers. As a consumer-facing business, that's our first indication that things are starting to turn. Other sectors will have different KPIs, but whatever’s the lifeblood of your business, monitor and measure it frequently,” he says.
Bryce agrees, “If you don’t have good information, you won’t see the storm coming.”
Plan for it
The three experts also agree an essential regular exercise for resilient companies is scenario planning.
This involves considering a series of scenarios, ranging from worst-case to best. With three-to-four scenarios mapped out, businesses can stress-test key business indicators to determine points of weakness. Identified issues then become action points for mitigation.
Get supporters on your side early
When economic pressures come on, it’s normal for business people to feel isolated. In truth, there are key players who have a vested interest in helping your business grow: landlords, suppliers, and banks to name a few. Rather than keeping them at arm’s length, Geoff’s approach at Backdoor has been to bring them in early and turn them into a support team.
“When times are tough and cash is becoming a problem, we negotiate with our suppliers, and we do it early. We take the same approach with our bank. If you’re upfront and talk early on with these key partners in your business, they tend to respond well, especially when you present them with a plan of how you’ll trade through.”
Bryce agrees but cautions that when working with key partners, it’s important to remain realistic with forecasts and plans. Trust breaks quickly when a business constantly overpromises and under-delivers.
“It’s far better to be realistic from the start. If things turn out better than forecast, you’ll win more friends and build more trust.”
Use a specialist advisor team
While it may be convenient to bring in one single advisor to help strengthen the overall performance of a company, bigger gains are found by engaging a team of experts who specialise in key aspects of the business.
For Geoff, this was certainly the case with Backdoor during the GFC. “Rent is a huge cost in our business model, and I wasn’t good at negotiating leases. I ended up bringing in a lease negotiator who got us significantly better arrangements. That has made a crucial difference to our growth plans.”
Jono agrees, saying, “Don’t have one adviser doing everything. Use different experts who can help with specific aspects of your business.”
Focus on profitability
All businesses manage costs, but resilient companies focus more of their attention on growth. For these firms, growth is not measured purely by production or revenues, but by improved profitability.
With over 15 years helping clients develop their businesses, Jono knows the importance of profit and the role that margins play. “100% margin will get you through in times of volatility. If you have margin to play with in terms of price range, you have more flexibility to ride out of storm. But if you've got tight margins, the smallest thing can tip you over.”
Find out more, subscribe and listen to Tompkins Wake Off the Clock podcast here: https://bit.ly/3EMvPar .