Gauging the mood of private business in Australia

 

 

The current situation is particularly intimidating for a generation of private business owners and executives that is seeing the current circumstances for the first time.

 

Only 12.3 percent of the wide group of private businesses with turnover of between $10 million and $100 million surveyed in the PricewaterhouseCoopers 2008 Private Business Barometer started life before 1995. This means very few private business owners and senior executives experienced the impact of the last downturn on Australia, with most reaping the rewards of several years of consistently strong economic growth.

 

 

There are several questions a private business should ask itself when determining the right strategy to survive and grow in torrid economic times. Just a few of these include: What area of my business should I focus on? Have we got a competitive, sustainable cost base? Are my products and customers profitable and strategic?

 

Interestingly, those businesses that emerge best from tough times tend not to be those that hunker down. The most astute businesses instead grow market share, refine product ranges and either acquire weakened competitors or push them out of the market.

 

There are several measures businesses must implement to position themselves well in a downturn. A large number of these, including building stronger cash reserves to offset the likely decline in working capital, must be planned or instituted well before the economic troubles arrive.

 

Owners and managers need to ensure a business has a balance sheet flexible enough to weather the storm and make the investments needed to build on its market position, including reviewing capital expenditure, analysing leverage and considering mergers and acquisitions.

 

The business must also resist the temptation to make wholesale cost cuts at the margin and instead target those areas where restructuring would yield greatest benefit. Outsourcing and leveraging internal best practices are ways of lowering costs without compromising capabilities. Identifying and converting to cash any non-core assets helps a business both sharpen its focus and strengthen its balance sheet.

 

When Australia last slid into recession, businesses that performed best understood the value they provided to customers and where their products and services ranked in relation to their competition.

 

These top performers used that understanding to determine their priorities and invested in information systems to enhance that knowledge even further. They also knew what costs to cut and when. For instance, many businesses that cut marketing expenditure lost market share while the best performers actually increased their advertising spend.

 

Top performing businesses would also collaborate closely with customers and tailor their products and services to meet changing requirements. In addition, they would manage pricing carefully to enhance profitability and position themselves strongly for the return of healthier economic times. Successful companies typically emerge from downturns with more diversified product offerings and a greater geographic presence than less successful competitors.

 

 

Here are some strategies:

 

•       Rank customers by size, profitability, recession resilience and loyalty.

•       Reassess and simplify product ranges, increase communication with customers, guard against employee defection and prepare defensive strategies for competitors’ price cuts.

•       Review customer records to determine which segments, sub-segments or individual accounts will first indicate an impending downturn.

•       Identify essential accounts based on size, profitability, recession resilience and loyalty.

 

Thriving during a downturn arguably requires greater diligence and skill than during more favourable economic times. However, the rewards can be greater as businesses that adopt the right strategies can not only grow but position themselves to exploit the upturn that will inevitably follow.