Tips to survive the credit crunch

28th May 2009

The current economic climate has brought business efficiency and cost-cutting to the top of most companies' agendas. But, while the outlook may seem grim, this could be just the catalyst many businesses need to seek out new opportunities.
 

"As far as new openings are concerned, you should always keep your eye on the marketplace and make sure that you are maximising the potential of your existing customer base," says Ganesh Selvarajah, business adviser at Business Link.

"Your existing customers may be cutting back, forcing you to consider where else you can provide your products and services. Exports are much more viable now because British goods are cheaper overseas - especially in Europe. However, you have to remember that global markets are contracting too so you could face stiff competition."

Companies are advised to have a clear business model when entering foreign markets and an understanding of the value they can bring. A good first port of call is UK Trade & Investment, which can provide you with market research services and find potential partners in foreign countries.

The Budget has also brought good news for companies with operations overseas. Dividends and other distributions from foreign companies will now be largely exempt from UK corporation tax.

Those companies intent on product launches, meanwhile, are advised to look at the costs and timescales involved beforehand. "One option may be to enhance your existing product line to make it more attractive," explains Selvarajah.

In today's economic climate, many companies are also looking closely at their organisation and business processes with a view to cutting costs.

Fixed overheads such as staff always come under scrutiny first, but Selvarajah warns: "Staff are hard to replace and getting that intelligence back can be very expensive. It's best to look at how you can reduce your total salary bill by, for example, introducing part-time working or job sharing."

Companies should also pay closer attention to their operational running costs such as power, lighting, paper, telecoms and staff travelling expenses. To achieve this, they should incentivise employees to generate cost-saving ideas, and implement them.

"The person doing the job is always best placed to see where savings can be made when it comes to process reviews," stresses Selvarajah.

Capitalising on new technologies and IT services also has an important role to play. Using broadband for both internal and external voice calls can significantly reduce your telecoms bill. Outsourcing data storage and leasing, instead of buying, IT equipment can also add savings to the bottom line. "You should talk to your service provider about data bundling and whether they can support your IT at a lower cost," adds Selvarajah.

Companies looking to make new investments this year should be heartened by the temporary increase in the rate of first-year capital allowances from 20 to 40 per cent, announced in this year's Budget. Businesses can now deduct more spend against their taxable profits more quickly.

However, current market conditions are clearly making it harder for many companies to source the finance they need and manage their cashflows effectively.

"The most important thing is to have a robust business plan in place when you are looking to borrow money," advises Selvarajah. "A well documented plan should detail what you want to do, where the money will be spent, how income will be generated and how and when you will pay back the loan."

He advises companies facing cashflow problems to consider using bank facilities such as factoring and invoice discounting.

Those companies, whose cashflows have been severely hit by the credit crunch, should take advantage of the recent Budget's extension of the HMRC Business Payment Support Service to all businesses concerned about meeting forthcoming tax obligations. Any viable business that anticipates a trading loss this year, regardless of its size, is encouraged to talk to the service about its options. These can include the ability to spread taxes due, such as corporation tax and VAT, over longer timescales.

Source: HSBC