Managing a business through economic ups and downs is not for the faint-hearted. It requires focus on the fundamentals, particularly on customers. It also means focusing on order rates, inventory turnover and changes in consumer buying patterns.

Volatile times provide companies with opportunities to think strategically. Where will the business be five years from now? Competitors are struggling too and that opens opportunities. 

The customer is the starting point. Businesses need to ensure their relationships with existing customers remain strong. That means looking after customers who stayed with you when times were hard. They are the ones in for the long haul. Chances are they’ll be your best buyers in good times. 

Consultants will tell you that broadening the client base is tricky. Customers you attract only because of a special promotion tend not to be that loyal. They will often be the first to abandon you for a cheaper offer. The key focus in volatile times needs to be maintaining the existing customer base and winning a bigger share of their business. 

The other fundamental is cashflow. Businesses need keep their accounts up to date and that is even more important in uncertain times. The simplest way is to have a cashflow spreadsheet that allows business owners to quickly see how much money is coming in and what payments have to be made. 

When things are going up and down, owners need regular profit-and-loss statements. These should be updated weekly, or, at the outside, monthly and within a few days of month end, giving time to act on the information.

This focus on cashflow should make businesses more aggressive about collecting cash when everything is so fluid. It alerts the business to what’s coming in, and which customers are taking too long to pay. The rule of thumb is 30 days or less if the business can enforce it. 

Unfortunately, many small printers are slack in this area. Certainly printers need to be tougher on cash collection. Sometimes it’s even necessary to halt supplies until customers pay. The worst thing small businesses can do is let payment drift out to 55 days and beyond. A regular review of costs is best practice in a volatile environment. 

The business should also be reviewed and the owner needs to look carefully at all the main revenue drivers and margins in a volatile climate. The review should focus on cost and expenditure, and whether margins can be tweaked, what areas can be cut, and whether the business is getting the most out of its assets.

When Lou Gerstner (regarded as something of a legend in management literature) took over as chief executive at IBM in the early 1990s, he knew he had to take $7bn out of the company’s cost structure in less than two years. To tackle this problem, Gerstner focused on the fundamentals. He talked to customers. They told him that their key area of pain was that IBM was too fragmented. Gerstner developed a new strategy where processes were streamlined, and layoffs targeted to create an integrated model. IBM today is thriving.

Gerstner did this through a SWOT analysis. This allowed him to look for new market opportunities and realistically assess which ones had the best likelihood of success. 

In a volatile climate, the business owner needs to ask whether market share is under threat. It’s the time to ask hard questions. Are new competitors coming into the market, as is often the case in a volatile business environment? Are their products and services better? Are they cheaper? What is the strategy for competing with them?

Comment below to have your say on this story.

If you have a news story or tip-off, get in touch at editorial@sprinter.com.au.  

Sign up to the Sprinter newsletter