Tough action that will help you to survive

Eddie Pacey outlines three aspects of a business that need particular attention when a hostile climate is eroding margins.

At times like these, businesses do well to maintain sales volume. When there is a rise, it's generally at the expense of someone else.

Increased market share inevitably means even thinner margin, and although moving into services and other high-margin areas can mitigate this, few have the capacity or funding to do it effectively.

To survive lean times, three key elements need to be managed well.

The first is overheads. When the time comes to consider cuts, it's generally back-office functions that bear the brunt.

All too often, however, sales, technical, logistics and marketing activities escape closer scrutiny and suffer only collateral damage.

All aspects of business that do not perform or deliver must merit detailed analysis, and cuts should be made where appropriate.

If a business is in the process of changing direction, this is a perfect time to review all activities and reduce both direct and indirect costs. It is never an easy task but one that needs to be done.

The second area is debtors. The channel is culpable in allowing clients to take too long to pay bills.

In a climate of irregular activity and strained financing, getting paid on time is crucial to survival. Keep accounts receivable ledgers pristine and current where possible, and always check out your major clients' credit standing.

The longer something stays unpaid, the costlier it becomes. With good management you can negotiate better facilities from factors, invoice discounters, banks and even suppliers which get used to you paying them promptly.

When you invoice, it is an advance of your money and not simply the delivery of product.

The final element is portfolio management. Retain and make use of historical data: client buying habits and patterns, products purchased, sales slippage, gross margins, payment habits and SIC codes.

Take time to analyse information and see how you can optimise your client base. Look for clients that have moved away or that show no regular buying habits.

Retaining clients, regaining lost business and expanding these relationships is much easier than finding new clients.

Which industry sectors are buying, which ones are in ascendancy and which are in decline?

In addition, do not adopt the lemming approach in imitating what you think your competitors are doing. Concentrate on your strengths and eradicate your weaknesses.

Eddie Pacey is group credit services manager at Bell Microproducts Europe.