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Treading warily among the green shoots of economic recovery

pic courtesy of imageafter.com

pic courtesy of imageafter.com

The recession is technically over, with much debate among economists about a U, V or W shaped return to good times. The phrase ‘green shoots of recovery’ became an accepted part of business conversation six months ago, but many still feel the pain of the effect of the recession.

Should the entrepreneur now assume that the bad times are now just a fading unpleasant memory and that it is good strategy to go back to business as usual? Or do those ‘green shoots’ disguise sharp spikes waiting for an unwary entrepreneur to tread on them? Continue reading

Time to stab the wounded?

CrosshairsAn old saying is that auditors arrive after the battle and enter the battlefield to finish off the wounded…

The events of 2008 and 2009 were a serious battlefield in many business sectors, with lots of failed and severely damaged businesses littering the landscape. A colleague expressed it in these words: “Those that survived the downturn often did so by using their reserves. They now are in business but in a vulnerable position with little or no reserves to fall back on. The ones who had no reserves when the downturn hit are not around anymore.” A harsh analysis perhaps but with much validity in many areas of business.

The euphoria of the successful Soccer World Cup and the air of optimism about the end of the recession is a good time to reflect where your business stands. Are you still skating on thin ice, where any major reversal right now will destroy you? Are you so overburdened by debt you find it difficult to trade? Or are you in a better shape than that, with limited but positive cash flows and some reserves?

If you fall into that latter category you may choose to start right now with a major and aggressive marketing campaign designed to take market share away from those competitors who are worse off than you. Continue reading

Taking baby steps – a strategy to overcome disaster

pic courtesy of imageafter.com

pic courtesy of imageafter.com

Here is a familiar story. A good and profitable business sees a potential threat become reality and turnover falls suddenly. The former comfortable profit becomes a monthly loss.

The first imperative is to stop losing money which means that there must be more gross profit or lower expenses or both. Surprisingly tiny, almost insignificant changes will stop the company losing money. It’s the practice of taking baby steps instead of giant leaps.

For example: A business turns over of R1M per month before the crisis at a gross margin of 40% with operating expenses of R350K per month, leaving a net of R50K per month. To simplify the accounting this article will look at profit per month, as if this was a cash business and ignore tax. Say turnover shrinks by 20% after the disaster strikes, and the profit turns to a loss of R30K per month.

If, instead of making radical changes or retrenching staff, the company implements a careful strategy of tweaking several factors the loss can be eliminated without major change. Continue reading

How to panic sensibly – strategies for overcoming a business reversal

Pic courtesy of freeimages.co.uk

Pic courtesy of freeimages.co.uk

In most businesses there is always a risk of a sudden and serious reversal. A big customer stops buying, a supplier kills a product range, there is a strike in your sector, a major competitor appears, or any one of many potential threats occurs. Turnover slows and profits fall below breakeven and turn to losses.

Usually the business owner now exhibits some degree of panic. Common responses include the owner (male or female, the male gender is used only for convenience in this article) punishing himself by taking out less money, adding to his worries and possibly getting into personal debt. Then he delays paying creditors as long as possible and as a reward may have raw material or inventory deliveries being suspended because his account is not up to date. Often he holds off paying his VAT and incurs penalties. He may institute some special offers for new customers to regain the lost turnover, but this will affect his margins and alienate his regular customers who are paying a higher price. Continue reading

The Ponzi Scheme

pic courtesy of imageafter.com

pic courtesy of imageafter.com

The discussion about the Ponzi scheme allegedly run by Barry Tannenbaum and possibly others has been extensive, but one significant point seems to have been missed entirely, and that is the morality of the scheme let alone the legality.

From newspaper reports the scheme apparently promised returns of above 200% per annum by importing the Active Pharmaceutical Ingredients or API’s and then selling these at very high margins to drug manufacturers Aspen, Adcock Ingram and others. Lots of high profile people like Sean Summers former CEO of Pick ‘n Pay and Norman Lowenthal former JSE chairman have been reported as being among many prominent and wealthy people who were apparently were duped into ‘investing’ large sums of money, as were many ordinary investors. Allegedly the transactions with the drug companies were fraudulent, with forged documents, and the returns of 200%+ pa were paid by using new investor’s money.

There are many grins at their expense – how could they be taken like that? But isn’t there another question which should be asked? Continue reading

Starting a new business

pic courtesy of freeimages.co.uk

pic courtesy of freeimages.co.uk

Starting a new business is an exhilarating and scary step across a line that non-entrepreneurs will never experience or understand. It’s a bit like going solo if you trained as a pilot. Suddenly there is nobody to back you up, nobody to rescue you, nobody to ask. It is the most incredible sense of achievement and excitement, and a bit frightening too. You can create in the corporate world but there is something special about creating a new enterprise that moves the sense of satisfaction into a different league.

The pointers below are there to help new entrepreneurs to reduce their risk and increase their profitability and enjoyment. And to avoid tripping over things that have felled others – I trust they will be valuable.

    • Be passionate. If you believe you supply goods and services that are really great, and you love what you do, you reduce your risk and improve your enjoyment.
    • Don’t be a ‘me too’ business – If you are just another supplier doing the same as many others around then you are likely to struggle. Be different.
    • You will get scared. You will worry you won’t make it, or be afraid you are not good enough. You will be tempted to give up. Get used to all this, it keeps you sharp.
    Continue reading

The new base line

pic courtesy of imageafter.com

pic courtesy of imageafter.com

In an economic downturn, as the world experienced recently, many small business owners react in peculiar ways. They will tell anyone who will listen about how bad times are while ignoring the depressing effect these words have. While they are usually skilled decision makers they often panic and retrench skilled staff, cut back on customer support and otherwise cut costs but have no plan to review these changes in the future. They avidly read case studies of businesses that have found a wonderful solution to their plummeting sales and therefore become recession proof; and then desperately try to find a similar ‘magic wand’ answer for their own business.

Some operate in the hope that the bad times are a temporary blip on an otherwise smooth growth path; an inconvenience which will disappear soon. They believe that at worst it may mean retrenching a few unwanted workers. They will prepare highly optimistic forecasts for the future, anticipating that ‘things will get better’ in a few weeks or months time.

A better way

There is a better way to weather these bad times. But first the small business owner has to face a few facts: Continue reading

Twelve reasons why marketing plans fail

pic courtesy of imageafter.com

pic courtesy of imageafter.com

It has become fashionable to discuss only business plans in the entrepreneurial environment. The marketing plan should be incorporated within the business plan, but many business plans provide only a cursory look at marketing. One reason is that many business plans are produced with the sole purpose of gaining finance for an enterprise, and so the focus is on financial projections, staff required and management experience. Once the finance has been secured the plan can be buried with all the other tiresome paperwork.

This is sad, because my belief is that most entrepreneurial failures and businesses in difficulty arise from one simple fact – they do not sell enough! And many times the reason that they do not sell enough is that their marketing and sales is unplanned, and poorly funded, the salespeople are insufficiently trained and the person responsible for marketing lacks either knowledge or clout or both.

As Dwight Eisenhower famously said “Plans are nothing, planning is everything”. The process of marketing planning will force research and debate and question assumptions. It will point to the need to set aside budget and train people. And it will link performance to actions.

Even with a carefully thought out marketing plan there is still a risk of the plan not having the desired effect. In my experience the failure of marketing plans comes from some or all of the following: Continue reading