Cut & thrust

By Barbara Johnson

(This article first appeared in BeautyNZ Magazine September/October 2008. Updated August 2011)

Slash and burn - or cut and thrust?

Every time I have picked up a magazine or newspaper recently, it has included an article advising on living in these recessionary times. Stop buying a coffee (yeah, right – obviously not written by an addict), cut costs, discount prices… and on it goes.

Much of this is sound advice, but there is also an inherent danger in recession thinking, as we all know. How much more downturn effect is created by the slash and burn actions of discounting and broad-brush shaving of costs? Where is a business owner to go?

Are we in recession or reformation? Is the world changing under our feet, implying that we should be taking a more holistic approach to the changes in our businesses, rather than simply reacting to falling sales and rising prices by using “slash and burn” methods?

Before you take any action, take some time to reflect (with a cup of coffee if you are still buying) on what you see happening in your business, with your clientele, and your services. What are your clients talking about? What are their concerns? Evaluate your costs – what are you paying for and what impact does that cost have on your business? In other words, how does a particular cost contribute to either your top line (sales) or your bottom line (profit)? For example, if an advertising campaign is bringing in more customers, or encouraging existing clients to buy more, then it is a cost you may need to keep. However if that same campaign produces no results, cut it – as soon as possible. What is the quality of your service like? Are clients greeted by a friendly face, offered good advice along with the product they should use for homecare? These things cost your business nothing, and can hugely increase the chances of customer retention.

Having taken stock, it is then essential to take action to cut– without delay. Set a plan in place for how your business will look and operate, and then go through all the costs, without exception, including your own expenses, and decide what goes and what stays. Decide what you are going to do to increase or maintain turnover, remembering that most of the promotion of your business is able to be done at very little or no cost when you are promoting to existing clients. Just treating them well and offering to rebook is a good place to start. Draw up an action plan, and start moving. This is the “thrust” part of the cut and thrust process – you are moving forward, with purpose, and taking deliberate action to nurture and refine your business. I cannot emphasise enough how important it is to take action. Remember that doing nothing is a decision too, and probably the worst decision you can make. No matter how hard, do what needs to be done. Take advice as needed, especially if you are making any changes to your staff – you do not want a costly employment action on your hands.

Ask your accountant what are the three things you could do that would most improve your business – half an hour of his or her time may be a good investment at this stage. Talk to your bank manager if you have a short term cash flow issue. And if you are behind with any taxes, contact the Inland Revenue – this will save you significant costs and hassles. They are generally very helpful if you contact them before you get behind rather than after, and they will set up an arrangement for payment over time.

Finally – measure. Part of your action plan should be to regularly evaluate the effect of your schedule, and changing it as needed.  And you will feel reassured to know what is happening in your business as opposed to hoping, fingers crossed, that all will be well. Because if all is not well, you need to move quickly. Know before disaster strikes what your limit is, and what your fallback position is.  It is crucial to take further advice if, in spite of your plan, conditions are worsening.

There is no question that we are going through a very difficult trading time, but many businesses continue and even thrive through bad conditions. Good habits you have learned in difficult trading times are a great platform for growth when the economic environment improves.

So, coffee in hand, avoid slash and burn, and move instead to cut and thrust!

Oborn & Johnson is a friendly, down to earth company, located in Takapuna, North Shore City. We have been specialising in accounting, tax and related services to businesses, investors, trusts and individuals, for over 35 years.

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