Sarah Thelwall, from the creative business benchmarking and accounting service MyCake.org, offers you 12 top tips for managing your business finances during the recession.
1. Know your client base
You need to nurture good sources of income – clients who pay on time or at a good rate. Do you know who your best clients are?
• 80% of your business usually comes from 20% of your clients… do you know which ones?
• who pays at your best rate and who pays on time?
• are these the clients who take up your best time, or does a number of small project do that?
By all means accept work from less qualified clients, but keep your focus and manage your time so they don’t detract from the important sources of income. In the better times you can politely decline work from the worst clients…
2. Don’t forget the small stuff
If you’ve been growing your business in good times, you’ll have had your eye on the big prize projects but if these are not happening fast enough, you need to go back and take a look at the smaller stuff that you may feel you’d outgrown. It is safe territory where you’ve built up reputation and trust.
3. Do some safe stuff
You’ll sleep better at night if you have some bread and butter income underpinning your business. As a guide, bread and butter income should cover your fixed costs each month, e.g. the rent, rates and utilities but not wages.
4. Ask for work
Are you missing out on work simply because you aren’t asking for it? Commissioners, brands and the other major players still need content. The Public sector still has budget (for one more year at least). Consider that your clients want to work with you, they want to give you their money and you need to give them every opportunity to do so: if you are designing one project, ask if there is other work you can design – e.g. graphics for offset print can pitch for exhibition and event graphics.
Don’t be afraid to ring up existing/previous clients and ask for work - projects from last year still need new material this year. There are ways of phrasing this that sound less desperate “are there projects on your to do list that we should be talking about?”
5. Add value
If you are under pressure to make compromises on price, don’t drop your daily rate but do over deliver. Look at ways you can offer more value that don’t cost you anything more your time. Consider billing or budgeting for 5 days and plan to put in 7 days work.
6. Employ the best you can afford
People are 100% the hardest thing to get right and the most important for your business. Right now fewer jobs means it’s an employers’ market - raise the bar of who you want to fill the jobs you offer and work on hiring people with the right personality rather than for their CV – you have to get along first and foremost.
If you cannot afford the best then consider hiring the best for one or two days a week instead of full time – you benefit more in the long run. Maintain your morals, pay people fair wages just as you would’ve before the recession.
7. Cash flow is king
Bad cash flow kills quicker than poor profitability. If you’re getting squeezed find ways to share some of the pain with your suppliers by negotiating better prices and longer credit terms. Identify your key suppliers and know how important you are to them before you negotiate. Also look at supporting your supplier, not just driving down price, but consider loyalty and building a long term relationship to help you both get through the tough times.
8. Keep visible
Don’t hibernate and hope to survive. In a recession people can easily assume you’ve gone. It’s important to keep your attitude positive as it’s easy to get overly gloomy. Recessions are an opportunity as your less committed competitors fall by the wayside. Make sure you find a way to keep some marketing budget and it will put you in a stronger position as you emerge from the downturn.
9. Investment isn’t dead
You can still have investment conversations in this market – don’t assume the window is closed for new deals, it’s just different.
Venture capitalists have funds they need to invest if they are to make the returns they’ve offered, so they need deal flow. Right now there are fewer good deals for them because in the current market fewer businesses are going to make the returns they like to see, but they are still looking. Get out there and start having conversations.
10. Invest in ideas
If you are not working at capacity then split the team between client work, pitching for new work and developing new ideas. R&D investment now will put you in a stronger position for winning business.
Consider how you plan your R&D. Perhaps put your best brains and most productive time towards R&D or scheduling time each day or week for R&D and then build client work around it.
11. Take risks
A recession is a good time to get rid of old fashioned ways and try new things. People are more open to new ideas and ways of thinking. Right now the broadcast crowd is taking cross platform more seriously (it’s cheaper but it’s also a good time to take a risk as failure is easier to disguise and the pressure of high expectation is off a little).
It is also important to be doing something new – your clients can no longer afford to be followers or they lose business too.
12. Get tough
Planning for bad times in advance helps you make tough decisions objectively rather than getting caught up in the emotion and security of keeping a vision going. It’s never too late to plan. Know your worst case scenario and work out the minimum you need to keep going. Then make it worse still, assume 30% less income and 20% more cost and see how bad that is.
If you’ve planned answers to the tough questions in advance it is far easier to implement the actions when you get to a bad point. If you have to agonise over it when it happens it will take you longer to decide, you’ll haemorrhage more money and you’ll put off the decision in the hope that it will get better.