How Do We Survive – And Even Thrive – In Times of Uncertainty?

How Do We Survive – And Even Thrive – In Times of Uncertainty?

First, we acknowledge that we will face challenges as we navigate our way through this. Expecting to do this with ease is not realistic.

Second, after we get clearer about our path forward, we hold this path lightly – evolving and adapting what we do in response to the changes we see around us.

Third, as we move down this path, we stop and find that place of stillness that exists within us. This supports us to find our true north, our anchor, in challenging and uncertain times. F

Fourth, we act as mindfully as we can. Being present to what is happening, being here in this moment – and the next one – enables us to see a more accurate version of the world around us. This helps us to make better decisions, so we swim with the current rather than against it.

And finally, we relate to ourselves, and to other people, with the greatest generosity we are capable of; as we appreciate and open to new and different ways of doing things.

This willingness to see the good in ourselves and others and to appreciate what is – may be the game-changer. For our willingness to do this reflects – and enhances – our belief in our ability to influence the outcomes around us, which is so much harder in times of uncertainty

At The Alternative Board, our business owners meet together regularly. And when we do, we share our best understanding of what is happening. And as we see more, and learn more, we course-correct. And then we course-correct again. And again…

If you are struggling to identify the best path forward, please call us to see how we can help you navigate through these uncertain times.

– Karen Van Eden, TAB Business Owner, Auckland West

How Do You Survive a Recession?

How Do You Survive a Recession?

Guidance from Gordon Stuart on Recession Tactics

It’s been dubbed ‘bigger than the Great Depression’ and daily news of redundancies and restructures highlight we’re in difficult times but we’ve weathered challenging economic situations before – so how can we learn from the past and prepare for the future?

Ten years ago, Harvard University published research into the way companies respond to economic crisis and how their actions ultimately determine shareholder value in the future. Covering three recessions – 1980, 1990 and 2000 – researchers found that 17% of the nearly 5000 businesses studied simply didn’t survive. Those that did survive were slow to recover and three years on from the recession hadn’t regained their pre-recession growth rates for sales and profits. Only a small number – 9% – flourished and the winners were not as expected. Those that won through adversity were those with a multi-faceted strategy able to master the delicate balance between selectively reducing costs to survive and investing for the future, spending on marketing, new assets, research and development.

Researchers classified the companies and their responses into four groups:

  • Prevention-focused companies, which make primarily defensive moves and are more concerned than their rivals with avoiding losses and minimizing downside risks.
  • Promotion-focused companies, which invest more in offensive moves that provide upside benefits than their peers do.
  • Pragmatic companies, which combine defensive and offensive moves.
  • Progressive companies, which deploy the optimal combination of defence and offense.

Getting the balance right, being a ‘progressive company’ is a challenge we all face right now, particularly given the effects of recession are not felt for some time – for example, the depth of the 1987 recession was felt in 1991. So best practice means being prepared for the next waves as they come through.

So what does best practice look like? Here are some steps that can help:

  1. Continue monthly /quarterly rolling cashflow forecasts
  2. Preserve liquidity so you have two to three months working capital
  3. Regularly forecast sales so you can identify trigger points for actions
  4. Use a financial model to calculate
    • Sales by category or division
    • Gross margin before labour by same
    • Overheads
    • Direct and indirect Labour
    • Your breakeven under a best / worst / likely scenarios.
    • Note your breakeven can be quickly adjusted to a percentage of sales e.g. 10% target.

The model below determines your monthly salary cap. Determining your salary cap is the best way to achieve your required labour productivity and, for simplicity of explanation, I have used an annual example.

  • Assume revenue of $1 million and a net profit goal of 10% or $100,000
  • Assume also, we have non-salary costs (costs of goods sold $200,000 and overheads of $200,000) i.e. a total of $400,000.
  • We can now determine a salary cap of $500,000 in order to still achieve our net profit goal of $100,000 or 10% at this revenue.
  • It doesn’t matter if your employees are part-time or full-time. You have a $500,000 salary cap. It doesn’t matter if you give incentive pay or hourly pay. The sum of all salaries & wages at the end of the year cannot exceed $500,000. It’s no more complex than that.  On a monthly basis, this is $41,666.67.

Being able to respond to economic challenges takes some flexibility – for some years now, agile working has been signaled as a good way to operate but what does that mean for day-to-day operations? For the most part, it means continually reassessing your position – what matters most? Next, stay vigilant, inspect and take stock of your numbers. Work on your strategy – what choices are there, how can you improve your value proposition, what will you do to inspire your team? Finally – agile means getting on with the job. Executing and implementing the plan as you adjust it and often this is the hardest piece of the puzzle.

We may find ourselves in a great recession but with some forward thinking, agility and an adherence to best practice it is possible to come out the other side and flourish.

With 28 years of international business experience, Gordon has been involved in many of NZ’s largest takeovers and is well versed in due diligence, valuation, project management and finance, and the need for good corporate governance. You can contact Gordon on 027 262 9596, [email protected] or connect with him on LinkedIn.

The Changing Face of Company Credit Risk Management in the Wake of Covid-19

The Changing Face of Company Credit Risk Management in the Wake of Covid-19

As we move back down through the Covid-19 alert levels and more businesses commence trading, it is clear that it will not be ‘business as usual’ for most businesses for some time. There may well be a small short surge as businesses open, but at present most business owners have little confidence in predicted business and public confidence beyond that period, as the impact of restructuring and redundancies take hold.

This raises the question of what steps business owners should now be taking to assess the risk of doing business with clients going forward. It would be great to be able to tighten terms of trade and insist on higher deposits or shorter payment terms, but practically that is unlikely to work in a lot of cases.

So what can a business owner do to improve credit management processes? Here are some ideas.

1. Review and update your terms of trade to ensure they are robust enough

2. Ensure, where appropriate, that you have protection through the Personal Property Securities Register by registering your interest in the goods sold.

3. Set up a credit watch arrangement with your credit agency to ensure that any issues with major clients are advised early. This at least gives you a head start over other unsecured creditors.

4. Review your client base and determine those clients where a failure to pay two months debt would severely impact on your business viability and look at taking our debtor insurance on those clients.

5. Where practical, look for higher deposits or shorter repayment terms.

6. Do proper due diligence on new customers including credit checks. This is a time when customers may be changing suppliers because of credit issues with the current one.

Like with health and safety and employment law, it is not sensible to use the old adage: “It will never happen to me”. Over the past few years some well-known companies have fallen over and I would love to have a dollar for everyone who said to me: ‘That was a surprise”.

Well-known brands in the media at present are publicly advising of difficulties, so one would be naive to think that any company is immune from failure

Now is the time to review and improve your credit risk procedures to bring them in line with the significant improvement that has occurred with health and safety processes in recent times.

– Steve Wilkinson, TAB Business Owner, Christchurch & North Canterbury

How do you navigate through these uncertain times?

How do you navigate through these uncertain times?

When our world is predictable, we plan with confidence.

But what do we when our world is not predictable – as it is now?

First, we acknowledge that we are dealing with an unpredictable world.

Why? Because most of us act as if the future is predictable – when it’s not…

Using the Cynefin framework (pronounced kenevin), we divide the world into those things that are predictable (on the right), and those that are not (on the left). Having identified this, we ask: Is the situation we are dealing with simple, complicated, complex, or chaotic?

These definitions are important. Particularly now.

In a simple world, cause and effect can be replicated. You can tell what to do simply by looking at what works and doing it.

In a complicated world, cause and effect are still predictable, but the actions we need to take are less obvious. This means we need to some research or bring in an expert to help us determine the best path forward.

In a complex world, life is unpredictable, and patterns do not repeat. We can only see a cause and effect relationship after we have acted and can look back over time and join the dots.

In a chaotic world, there is no cause and effect relationship.

So how do we chart our path through these uncertain times?

First, we need to accept that what we have learned in the past will not necessarily help us in the future. This can be a hard lesson to learn…

Then, we scan the environment as accurately as we can, to see what is happening. Then we do the next best thing we can – we experiment. Then we learn, and we course correct. Then we look again, learn some more, and course correct again. And again.

As Jean Boulton said,

“Wishing the world was predictable and controllable does not make it so and might make us disregard what is actually happening.”

At The Alternative Board, our business owners meet together regularly. And when we do, we share our best understanding of what is happening. And as we see more, and learn more, we course-correct. And then we course-correct again. And again…

If you are struggling to identify the best path forward, please call us to see how we can help you navigate through these uncertain times.

– Karen Van Eden, TAB Business Owner, Auckland West

With over twenty years’ experience as a management consultant, both with Deloitte and self-employed, Karen has worked with a wide range and size of companies across a broad spectrum of industries. Combining a high level of business acumen with a deep concern for people, Karen has successfully enabled business owners to lift their results, improve their effectiveness, and enhance their culture.  You can contact Karen on 021 447 584, [email protected] or connect with her on LinkedIn.

Turning disasters into opportunity – the case for planning and the lessons learnt

Turning disasters into opportunity – the case for planning and the lessons learnt

The thing about business planning is that it presents options that are available at some future point. Having a clear view of potential options can be remarkably useful. Especially when your business collapses around you.

Take this example – a TAB member had a small engineering workshop in Tauranga, with two CNC machines that were fully committed. The opportunity to expand capacity was in the 2021 plan (built using the TAB planning tools). In mid-2019 disaster struck – one machine failed and the business was in real trouble. The machine was no longer supported by the manufacturer and after six weeks of attempted repairs and imported second-hand parts that failed to help, the reality was accepted. Customer orders had been given to competitors to supply and the machine was scrapped.

Now the choice was to re-invest or close!

Fortunately, the planning had been done on new capital investment and the monthly accounts were in very tidy order in preparation for the inevitable scrutiny by a lenders credit committee. So a new machine was purchased at $200,000 and the business began a new chapter.

Lessons learnt;

Time out of the business: This owner was forced to take time away from being completely focused by his workshop and now had time to talk to customers and potential customers. What he learnt was worth more than his lost production.

Customers: This was the opportunity to leave behind the customers who were low margin or late payers as the company took on new business.

New Investment: The new machinery catapulted the business’s capability over the competitors and gave the business a competitive edge to talk about. It changed the business’s position in the Tauranga engineering business.

New business: Was being won on the capability of the machine, at improved margins, for the reality of the market was different from the owner’s perception. It was not a priced based market! The lowest price was not the key desirable. It was reliability-based. Customers were willing to pay for surety of supply and were not interested in obtaining a lower price.

– Craig Ross, The Alternative Board Business Owner, Bay of Plenty

Craig has a well-rounded business background at CEO and Director level, with experience gained both in New Zealand and overseas.  The businesses he’s been involved with have included B2C and B2B, single-site and multi-location, with both manufacturing and services-based offerings. This has brought exposure to warehousing, logistics, automotive, retail, quality management, property development, marketing, and sales team management. With employee numbers ranging from a few to many hundreds, Craig’s experience of human resource management, team development, and Health & Safety has been multidimensional. You can contact Craig on 022 089 7307, [email protected], or connect with him on LinkedIn.

Paul Denton

Paul Denton

“You don’t need to go it alone.”

Paul Denton – Scott PHS

“Prior to joining TAB the opportunity to share my ideas and day to day issues was limited to my accountant and some of my senior staff. Having an opportunity to meet with other business owners with remarkably similar issues was empowering.”

“Since joining TAB I have resolved a number of difficult employment-related issues, but more importantly gave me the motivation to step back long enough and complete a Strategic Plan, with the invaluable assistance of Karen Van Eden. Critical for our future growth and longevity.”

“TAB gives me an environment that challenges me as an individual and reminds me of my responsibility to my staff and customers”

“Bruce is a treasure of experience and professional connections of which I have taken advantage. One on One Coaching has help me confirm my thoughts and provided connection with other professionals to help resolve issues that ultimately strengthened my business. I would have no hesitation in recommending Bruce and Karen and TAB to any business owner. You don’t need to go it alone.”

Paul Denton

Managing Director – Scott PHS

The Alternative Board - Owners