It’s been a great decade for business; a booming economy, low interest rates, plenty of credit and high consumer confidence have combined to fill order books and pump out profits. Many businesses with less than perfect service and product delivery have not only survived but thrived on the wave of demand.
We’ve all experienced it, even in small ways – you try to book into a fairly average restaurant and they tell you what time they will allow you to come, or insist that you queue for the privilege of dining there. And they don’t even give you chocolates with your coffee anymore!
You want to spend thousands of dollars on a piece of furniture, or even hundreds of thousands on a car (that’s you – not me!), but you have to wait months for delivery. You find a good hairdresser/electrician/plumber and don’t tell any of your friends because you know that the response to more demand could be that you are relegated to the undertrained apprentice.
The skills shortage caused by a buoyant economy is pervasive and many businesses are harbouring some staff they would prefer were working for their competitors. As a consumer you’ve had little choice but to put up with it.
Lack of skilled staff and high demand puts huge strains on a business and while turnover and profits might be there, now, underlying cracks in the foundations of the business will have been emerging while all resources have been concentrated on just meeting demand.
Insufficient attention has probably been given to:
The fundamental principle of giving the customer what they want, rather than what you want to give them, can a back seat in an overheated economy. It’s when the pendulum swings from a sellers’ market to a buyer’s market, and it inevitably does, that the pretenders are found out. When consumer confidence falls and less money is being spent it’s those businesses which have a solid foundation and live by the principle of giving the customer excellent service that will survive.
With rising interest rates and tightening of credit, managing working capital becomes critical. You have to concentrate on getting rid of that old stock; follow up your debtors voraciously; make sure your authorisation procedures for inventory purchases guard you against overstocking; and review your finance facilities so that any core debt is moved out of overdraft and into cheaper commercial bills – the pendulum has swung and the banks are no longer falling over each other to get your business. It’s back to schmoozing your bank managers – let them know what you’re planning, and show them you’re in control of your business. Give them realistic budgets and be careful with your assumptions, especially for debtors collections as average debtors’ days outstanding has increased since the start of the year.
As value for money takes on increased importance, businesses need to take the fat out of their cost structures. The pressure your customers put on you can also be applied by you to your suppliers. In a slowing economy suppliers may be more keen to offer discounts to maintain their own sales volume.
In a buyers market, it’s the businesses which focus on getting the fundamentals right that will survive an economic downturn and be in a strong position for the next swing of the pendulum. That includes understanding and exceeding their customers’ expectations. Maybe our coffee will come with a chocolate again.
Sue Prestney FCA is spokesperson on SMEs for the Institute of Chartered Accountants in Australia.