You should review your business finances on a regular basis yourself or have your accountant reporting this information to you. Such reviews can alert you early on to financial warning signs.

Look for early financial warning signs.

Ask yourself:

• Is your working capital or cash flow decreasing?
• Are you failing to meet your budget projections?
• Are your costs increasing with no corresponding increase in revenue?
• Is your return on investment decreasing?
• Are you maintaining your profit margin?

Keep an eye on financial indicators and use them as early warning signs. For example, your free cash flow can give you an idea of the current health of your business. Free cash flow is the amount of cash your business generates in excess of what it needs to run. It's also useful to keep tabs on your net operating profit over the cost of capital. This tells you whether your assets are adding value or consuming more in service than they produce in revenue.

Productivity is another useful indicator. Your productivity is calculated as the value of your outputs divided by the value of your input. If your productivity increases it means you are creating more value at less expense. Your RAN ONE accountant can help you calculate and interpret these indicators.

Manage your cash flow.

Cash flow is often a problem in downturns. Fixed costs stay the same but sales may fall, reducing your profit. Customers are slower to pay, while you may need to keep paying your bills on time. Even if your business is fundamentally sound, cash flow problems can emerge in a downturn.

Preparing monthly cash budgets can help you keep an eye on the short-term, unforeseen, and seasonal factors that have an impact on your cash flow. You should actively manage your accounts receivable, accounts payable, and inventory costs. This means regularly reviewing outstanding debts, aging your receivables on a monthly basis and stepping up efforts to collect overdue bills. See if you can make payment more efficient. For example, you might be able to set up electronic payment arrangements with your clients. This can speed up bill payment considerably.

Keep an eye on your customers and their creditworthiness. Consider employing a credit agency to scrutinize any new business customers. Set credit limits, invoice on time, and send regular reminders. Be rigorous in collecting debts, but be astute and non-confrontational in the way you pursue overdue accounts.

At the same time, get the best possible repayment terms for money you owe. Negotiate extended terms or discounts for early payment when you buy goods, for example. Try to reduce your own debt. If you liquidate assets to generate cash, think about paying off existing debt to reduce the ongoing drag on your cash resources. But try to increase your credit resources, just in case you need them. If your lenders will give you higher credit limits, take them.

Minimize inventory costs

You may have a lot of money tied up in excess inventory. You will only know if the inventory is excessive if you keep regular tabs on the supply of goods and customer demand for these goods.

You may already run a lean operation and have reliable suppliers who minimize your inventory costs by delivering goods exactly when you need them. But a downturn is a good time to review the relationship with your suppliers. Are you communicating with them as effectively as possible? Many companies rely on building a trusted relationship with their key suppliers, but a downturn may threaten such a relationship. What would happen if one of them went out of business? Do you have any backup arrangements in place?

Review management

Review your management performance. Are you and your managers making good decisions, delegating well, and managing your time and responsibilities effectively? Are you operating within budget? Are any tensions or strains developing between management and other team members?

Look for alternatives to hiring salaried team members. If demand is high, consider increasing overtime or hiring temporary or contract workers. You can also think about outsourcing or investigating whether you can get your suppliers to carry out work for you.

You also need to review your assets and the way they are performing. Is equipment being adequately maintained? Is it still in good condition, up-to-date and able to produce with competitive efficiency? Would equipment upgrades increase your efficiency?

Market your company economically.

Companies that cut their marketing budget in a recession may come out of the recession with a reduced market share. But while you need to maintain your marketing efforts, you should also seek ways to get a good result with fewer costs. For example, you might find that you can gain low-cost exposure by using trade fairs, or giving speeches at conferences. Try to get more for your marketing dollar by targeting your customers more effectively. Review your customer demographic and try to find just the right publication, radio station or website that will reach them. Don't market your offering based on hunches. Follow up your marketing activities with surveys to find which marketing activities actually boost sales.

Value honesty.

Consider your company's human capital. Your team members are likely to be under stress during a downturn. Try to maintain their loyalty by dealing with them considerately and honestly. When you decide to cut back, you need to fully communicate the reasons. Your team members need to be on board completely or the efficiency of your business will suffer. Be equitable. If you cut costs, target conspicuous privileges such as executive parking or country club memberships.

You should ensure that you have advisors that you can trust. You will be relying on their good judgment and integrity. So make sure that you deal with reliable and frank business partners, such as your RAN ONE accountant, who will look out for your interests and will not shy away from telling you hard truths about your business.

Memorable Quotation:
"The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year."

~ John Foster Dulles, Former US Secretary of State