Chartered Accountant John Hughes, a partner with Deloitte & Touche LLP in North York advises identifying where your business makes money now.
"Ask how you can do more with your existing cost base. Focus on your current customers - it's more expensive to prospect new ones - and determine how to increase value and enhance existing products or services."
"Managing cash flow is essential in a downturn," says Chartered Accountant Chirag Shah, partner, PricewaterhouseCoopers LLP in London.
"Prepare a cash flow forecast for the medium to long term. Understanding the receivables and payables cycle is critical, especially in a new business. You want cash to come in the door faster than it goes out."
Cash and Systems Analysis
"Identify the problem - is it a revenue or cost issue? This helps you focus where it counts," continues Shah. Similarly, by identifying mandatory costs (business loan) versus discretionary costs (travel, marketing, renovations), you can reduce your immediate cash burn rate.
"Analyze your customer payment cycles and margins. Do you have a cash crunch because you have leveraged too many obligations? Can you negotiate with suppliers? Can you manage your capital to gain more flexibility, such as leasing instead of purchasing vehicles?"
Shah encourages you to, "Develop a contingency plan to manage business risk. What changes in the marketplace are affecting you - the cost of gas, labour costs? Does your financing meet your business needs - should it be restructured?"
Nurture Corporate Talent
"Talent involves more than HR policies," says Hughes.
"Develop a management team that can adapt to change, understand current trends including globalization and technology, and leverage these trends to your corporate advantage.
"Hire a consultant who has experienced a downturn - this often pays for itself. Have a strong finance professional on your team who can optimize finances. Reward your staff by offering incentive programs, perhaps by adjusting your commission rate on a new product."
Be Creative
Even in a downturn, think outside the box, Hughes suggests.
"Use technology and innovation to your advantage. Will an investment in state-of-the-art equipment offset your outlay by maximizing efficiency and reducing costs? Look at global opportunities because your customers are around the world. Can you reduce costs by purchasing products abroad or offshoring services to India?
"Your CA can help you answer these questions and develop a network. Lots of knowledge is available in Canada to help you partner with other countries and achieve a competitive advantage."
Not Enough?
If you are juggling payments, Shah advises avoiding repercussions by prioritizing creditors based on penalties or special claims on the business.
Generally, priority is given to statutory remittances (source deductions and retail sales taxes) as well as payroll and employee expenses. Other creditors with claims are next, including payments for leases and rent, debtor arrangements, and income and property tax payments. Finally, consider the claims of suppliers and shareholders.
More information can be obtained from a Chartered Accountant.
Brought to you by The Institute of Chartered Accountants of Ontario.
- News Canada
Editors, this article is for use in Ontario only