26 Jul Future proofing your business for economic changes
Future proofing your business for economic changes
Blog post by Kristy Smith
15th May, 2023
Australia’s economic inflation was previously sitting high at 7% and it is now slowly trending down following the Australian Reserve Bank’s adjustments to the Cash Rate month on month through its Monetary Policy.
However, Australia’s economic inflation rate has a few more months to go before it evens out to a ‘normalised’ level.
Economic changes can be viewed like Seasons that arrive, remain for a period of time, they slowly depart, the economy returns to a new ‘normal’….. but somewhere down the track and for potentially for differing reasons there is a change in the economy and to that the seasonal change re-commences and businesses must adapt!
So, how do we deal with those economic changes in business?!
Our knowledge and experience show us that the greater the overall health of your business in times of warmth and growth, it will generally hold more capacity to invest and/or sustain itself during cooler periods. The return during an economic upswing in the market, comes down to three key factors in business resilience:
Existing profit margin performance above market level,
Preparation for economic “seasonal” change, and
The business goals post economic change/downturn.
For business owners and leaders who have not weathered an economic downturn or wish to improve how they manage through the cycle of changes we provide the following information on how you can protect and prepare your business:
Prepare for the upswing
- A Business Continuity Action Plan or Playbook can become a script and reference tool for guidance during certain business disruptive events such as economic downturn, cyber attacks, floods, fires, etc
- Be prepared for tough times, and the tough decisions that follow. Key leaders in your business also need to be able handle the difficulties and tough decisions and conversations
- Strategise and plan for how you want your business to be after this period of time
- Train your people well during surplus time
- Fix areas of your business that have been on the to do list
- It is cheaper to grow in a downswing market
- Retain the efficiency developed in the downswing throughout your upswing = greater profit margins
- Build up your cash flow and cash reserves
Improve your business productivity
- Increase productivity in all areas of your core business to produce high outcomes with less resources and effort
- Ensure your business is efficient
- Maximise your existing technology. Understand all the features and benefits it can provide and deploy all that is practical for your business
Grow your business
- Focus on actions that grow your business
- Changes in economics can see new market opportunities being discovered. Being open to a different customer base and their needs may see a new market segment for your business emerge.
- Reducing marketing expenditure is not always the best long term response. Reviewing and ensuring marketing activities are effective for the current market is crucial
Nurture your customers
- Stay in touch with your loyal customers and their needs as they may change
- Marketing new services and products to your existing customer base that is tailored to the current market sentiment
Manage assets and production for current demands
- Manage your assets and inventory for today, not what was 12mth ago
- Manage production to demand so to best utilise assets, inventory, and human resources
Deepen your financial management and reports
- Savvy financial management is essential and should include cash flow forecasting, flexible debt management, curb discretionary spending, & manage cash reserves are key!
- Excellent business reporting – revenue, costs, debtor days, profit, & profit margins should be monitored. Reports to identify where your strengths and weaknesses are will allow you to be informed in what areas you need to manage.
- Incredible savvy cost pausing or reductions in non-essential or discretionary areas
- Holding onto the increases within your business can be unsustainable, so knowing which costs of business increases should be passed on, when, and how are important. Price forecasting and communication methods are key to good preparation with customers!
Manage your people resources
- Adjustments in employee hours based on current business demand, rather than releasing employees which may increase your costs and disable your ability to ramp up quickly in the upswing
- Ensure your people goals or KPIs are clearly aligned to the current demands and focus of the business. No one should be performing or focussed on activities that are not important today
- Re-train and prepare your people for the economic upswing
Holistic decision making
- Decisions should consider the broader implications and knock on effects of a decision
- Decisions of investments for a desired asset to implement a strategic initiative that becomes available because of a change in market is a more prudent decision that one that was made because the item/asset was cheap
Leveraging leverage and investments
- A lot of businesses that really prosper during the economic downturn are those that invest by seeing the opportunity – assets, people, systems.
- Leverage the mindset of the Company, by using the pressure to get areas of business moving
Our three key takeaways for all small medium business owners in future proofing or preparedness of their business are:
Points 1, 3, and 6 above are key; Prepare for the upswing, Business growth, and Financial Management,
Market changes, economic uncertainty, and business changes are an event that won’t always last forever. Finding the balance between doing everything possible for now whilst preparing for the upswing. It is a balance act of knowing when and how to shift gears during the period,
Be resilient business during economic downswings will re-rise well on the upswing!
About the Author
Kristy’s been helping SMEs like yours optimise their people, productivity and performance capabilities since the early 2000s. A self-confessed science nerd, fact and data lover, and with a particular interest in human psychology. Kristy has expertise and experience in a range of industries, including Health Care, Automotive, Agriculture, Academia, Technology software and hardware, Mining, Oil & Gas, Property, Retail and Sport.
With academic qualifications in Business, Human Resources, Legal, Leadership and Management. But the best part is – Kristy’s a business owner just like you!