Frequently asked questions on finance in a recession

 

Advice on how to adapt business finances in a recession
 

“It’s a recession… how can I increase prices? and by how much?”
Experience says that customers are pretty tolerant of price increase if you can demonstrate added value. The problem comes when you are selling what is, in effect, a commodity. For instance, there are standard prices in the building trades and many Purchasing Officers do literally buy on price. Then you need to consider if you are in the right business. Or find ways of doing what you do better cheaper, quicker or faster!
 

“What is the impact of increasing my prices?”
Normally you will lose some customers but they tend to be customers that are more price sensitive (and often the customers that you want to lose). Ironically, some customers are surprised that your prices haven’t increased for so long! See the price–margin charts above to calculate how much business you can afford to lose before your actual gross profit reduces.
 

“How can I continue to have cash-flow crises although my accountant tells me that we are in profit?”
Profit and Cash are two separate and yet competing beasts. To run a business in a recession you need more and more cash to feed your purchases of stock and staff. It is not unusual for staff and stock to be paid within, say, seven days, yet customers may not pay you for over a month. The result is a working capital crisis. The big order looks like the ‘light at the end of the tunnel’ – the reality is that it may be an express train heading straight for you.
 

“How can I get better value from my accountant?”
Demand cash-flow statements and demand to see figures to explain your net working capital. Do not put up with an occasional discussion. Demand value for money. Seek advice that will actually help you to run your business. Or leave your current accountant and find someone who is actually going to add value to you and your business right now!
 
 
 
Robert Craven shows MDs and owners how to grow their sales and profits and focuses on how to do this in recessionary times. His latest book is the runaway success “Beating the Credit Crunch – how to survive and thrive in the current recession” www.directorscentre.com
 
He is a keynote speaker and the author of business best-seller ‘Kick-Start Your Business’ ‘(foreword by Sir Richard Branson) and runs The Directors’ Centre, helping growing businesses to grow.
 
For further information, contact Robert Craven on 01225 851044 rc@directorscentre.com .