Turnover for Vanity, Profit for Sanity

15th May 2020

I have managed business through every recession since 1987.  Some of those have been big – the crash in 1987, which hit just as I set up Academy Leasing, ended many businesses.  Some unfairly and some prematurely.

My experience has been largely in the asset finance sector which has given me a decent insight as to what makes most businesses tick, what makes them robust enough to survive and importantly what the warning signs are.  There’s an old saying – turnover for vanity, profit for sanity and over the years I have seen too many dreamers fighting for turnover and more often than not, they find themselves in a nightmare.

The difference this time round is that the impact is global.  As much as the virus itself does not discriminate, neither does the impact on business.  I believe that the landscape will change and if businesses continue without embracing that change, there will be more than a few casualties in the coming months.

From my experience I will offer a few words of advice…

Don’t expect it to be as easy to obtain funding for your business because many of the traditional funders have been hit as hard if not harder than you have and will need time to get back to normal.  The pattern after every recession is a tightening of the credit market and this time it will be no different, so you need to be prepared and not insulted if a previous supporting lender for example is unwilling to assist or has increased the pricing.  Not all of the current lenders will be around in a few months’ time and in particular the P2P platform will be under tremendous pressure.

Liquidity after a recession is paramount and there are a few things you can do to maximise and retain the cash in your business.

There is a perfect opportunity to review staff and invest in technology.  The latest pandemic has taught many of us that working from home is viable and often more productive, offering this as a long-term solution can reduce your office space requirements and save you money.  Sadly, there will be some businesses who can no longer support the same staffing levels – job share opportunities are worth considering but don’t be afraid to make tough decisions for your survival.

We’ve also seen that some businesses have been able to adapt quickly by switching purchases to online and implementing delivery services.  Adapting to the new world is key, look at the technology available.  Whether you like it or not, every business is tech based now – just that some are better than others.  Be one of the better ones.

Take time to look at your sales ledger and ask yourself do you really need the low margin, slow paying ones.  It might seem counter-intuitive to walk away from business but think of time spent chasing unpaid invoices. The actual cost of that delay to your cashflow.  Let them go elsewhere and concentrate your efforts on the ones that do pay.

Explore an invoice discounting facility – even though you think it is an expensive means of funding, this sector will still be strong and there are now many flexible, spot facilities available, so you can select the contracts that you want to apply this to.  There is a cost but having cash in the bank now will outweigh that cost.

Get your company cars under control either by outsourcing or paying a car allowance to essential users.  Cars are an emotive perk and before you know it everyone on the scheme wants a £45K BMW.  Change the scheme, look at electric options or switch to car allowance and remove yourself from the equation.

Same with commercial vehicles.  Are there any that are spending too much time in the yard?  It may be that spot hire or a split between ownership and rental is more efficient.

And finally, check your direct debits. You will be surprised how many photocopiers you are paying for that you no longer require!

There are many other steps to take but the aim should be to create both liquidity in the business and time to manage it going forward.

Many fall into the trap of “Business as Usual” but this time round it won’t be