In business, as in life, there are ups and downs, good days and bad. In commerce, this is known as the Boom and Bust Cycle. The secret to success is to learn how to survive those periods.
The Boom and Bust Cycle can affect any sized organisation in any industry, but it’s the small to medium-sized enterprises (SMEs) that tend to suffer most.
Generally the major corporations have enough cash flow from other areas, and enough money stashed away, to get through the quiet times. For a smaller business that relies on earning money daily, it can be a major concern.
Plan For Worst Case Scenario
The secret is to actually plan for the worst case scenario, particularly if you work in a seasonal industry, such as tourism, and some forms of agriculture. By looking back over the books for the last few years, you should be able to track a pattern.
Ask yourself some key questions:
- Are there times I could stash money away?
- Should I be employing casual staff, so that I can downsize when it’s quiet?
- How about outsourcing certain tasks?
- Is there some way I can diversify, in order to generate income throughout the year?
Customer Service Is Key
A key element of your plan is to stay abreast of what’s happening in the world. Remember, your customers can only spend money with you when they have it. For example, if your customers come from the mining or agriculture sectors, they could be cutting back.
However, customers will remain loyal to businesses they believe offer good value and excellent service. Your customer is your #1 asset, so invest time in building up good relationships and regularly evaluate your customer service.
Watch Your Cash Flow
Do you know exactly what is happening with your cash flow at any given time? That might sound like a given but, if you are a small business owner, the chances are you’re under the pump.
According to the Australian Bureau of Statistics, 60% of small organisations go out of business within three years of opening. At least 40% of those are due to insufficient cash flow.
Tips To Better Manage Your Cash Flow
- Better stock control – only buy/hold what you need
- Better account management – chase up overdue accounts
- Reduce overheads – can you make savings on power and waste?
- Review bank products – are you paying too much in fees and charges?
Learn To Diversify And Delegate
Another way to break the Boom and Bust Cycle is to diversify. Think outside the box. What else can you do with the resources you have to increase your income? For example, you have a strawberry farm, and that has a limited season.
Can you boost your income during the season by adding a retail or cafe outlet? How about farm tours, or farm B&B? Is there a crop you can grow when the strawberry season ends?
Another key to preparing for the down times is to learn to delegate. Your priority is managing the bigger picture, and staying on top of finances. You can’t do that if you’re immersed in day-to-day details.
Stay Positive
There are always going to be downtimes in business, so use that time wisely. Catch up on staff training, carry out repairs, go over your financial plan with your accountant, and research ideas for diversification.
It is possible to survive the Boom and Bust Cycle if you are prepared. Plan. Monitor. Assess. And most of all, stay focused and positive.
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