Sassoon Saleh, FCA MIoD About Us

Why is this necessary – because the pace of change effecting the largest to smallest businesses is so large that management can not simply hope for the best, or just rely on current success.

It is the way by which you can align your resources (eg tangible and intellectual assets, and your personnel) to meet the competitive threats currently facing your business, overcome future challenges, and exploit opportunities. Markets can now grow to maturity quickly, and decline rapidly before you can react. Even with good plans, more is required to ensure you execute the plans with sensible actions, and get accountability in this process. It is more than simply having a nice vision, or slogans – you need to get the functional strategies in place, the measures to ensure accountability, the action plans, and the communication/information process right. This requires a very good knowledge of your business sector.

The immediate need to concentrate on current problems means strategic planning may be shelved – but that is a mistake if you want your business to realize its full potential. You achieve success by addressing the fundamental question of where your business should be in three to five years, and how it will get there. Your plans now are not the end of the story – just the beginning as you will continue to realign them to changing circumstances and the competitive environment your industry faces. You will find all your management and personnel involved in this process.

To get you started, think about the following:
How will you respond to significant changes in eg interest rates, technology, trading cycles, competition and product cycles, economic stability/instability and risk in markets, demographic changes in your customer base, currency, political and regulatory factors.

When considering the functional strategies, you should consider financial and non-financial issues, and set measures taking account of the following:
-    management skills and capabilities
-    products/services growth and competition in products/services
-    profitability, cashflows and financing
-    developing people and human resources to meet business needs
-    dealing with acquisitions, disposals and investments.

Surviving a recession - How well is your business prepared for uncertain times?

Competition & business specialist

You can contact Sassoon (Sass)
by phoning on
020-8202-9796 (London), or

email S.Saleh@btinternet.com

The following is useful information on strategic
planning and dealing with recessions

Obstacles to successful implementation of plans:

Click on links below for more information:

Be careful to assess the relevance of the strategies to your success now (and into the future). Some factors may be unimportant now, but this will change – so don’t fix plans in stone. Ensure the strategies are flexible, so that the action plans (eg marketing) that support the strategies will be successful and relevant. You may also have to prioritise the action plans, and reappraise the strength of your resources (people /technological/ tangible assets, etc) to deliver the required outcomes.

A similar approach is needed to realise synergies and cost efficiencies following mergers and acquisitions. Failure to consider strategic issues often leads to poor execution of mergers and acquisitions.

Where markets change rapidly, there is a continuing need for innovation and renewal of products/services. The following are some reasons why execution of good business plans may fail:

attitudes of complacency and satisfaction with current progress/success,
procrastination or group-think existing at key levels in the organisation, which
stifles  effective decision-making;
'insiders' refusing to consider the full competitive landscape (thereby failing to
identify  actions focussed on customer needs in sufficient time);
managers being over-burdened with responsibility, but lacking resources and
support to do the job
a lack of accountability at key levels (eg by failure to set milestones to measure
success  in financial and non-financial terms, and/or failure to identify the
source of problems until too late)
too great a focus on cash generation at the expense of investment, training,
marketing and product/service development.

Competition from smart new/existing players can overwhelm even the leaders in a market, which do not have the competitive advantages (or financial strength) to survive independently in the long-term.

Recessions are bad news for businesses even if they did well during the boom. For managements, two critical factors to independent survival are ensuring they:
(a)    make good decisions at the right time, and
(b)    have adequate financial resources (either by cash and liquid investments, or borrowing facilities).
They will therefore be able to reposition their business to overcome conditions where demand falls (persistently) for their products or services.   Those that can’t do this will probably fail, or be taken-over. There are both short-term and long-term actions necessary for independent survival, as this paper will indicate.

Throughout a period of recession, the need to review your product structure, and reorganise parts of your business is also a vital discipline. Assuming your business was profitable before the recession, the following sections will help management (including directors and senior managers) focus on the actions necessary for long-term survival and continued success:

1.    Costs
2.    Availability of financial resources & plans for survival
3.    Suppliers and your people costs
4.    Your customers, products and pricing
5.    PR and product development
6.    Your management’s capabilities
7.    Your competition
8.    Your overheads, fixed assets and capex programmes

As you review the following points, please think of how the points impact on your business. Where you note issues of interest to you, ask whether you have the action plans in place to resolve the issues to your satisfaction. If the answer is you ‘don’t know’, then clearly a problem is identified for consideration and deployment of resources.

It is usually easy to think of cutting costs when faced with [persistent] falling demand – but as shown below, cutting costs requires good decision-making and will not guarantee long-term success or survival.

For example, shutting-down parts of your business or selling-off assets, may ‘buy time’ to sort-out immediate problems; but long-term survival means ensuring your products/services continue to meet customer needs, which your business may never have recognised in the boom times.   If you don’t think about these issues, competitors (known or unknown) will address the new market conditions that present themselves in a recession.

Similarly, restricting or postponing expenses/commitments will only buy you time in order to take the necessary corrective actions as discussed below.

If your survival strategy depends on asset disposals, this could be difficult to implement. You may have to sell assets at what you consider are derisory low prices because the price will depend on subjective value to potential buyers, who will take account of loss of confidence (and your limited options to find alternative buyers). You will need to be sure you have objectively verifiable backstop prices (to realise the cash), or alternative strategies as discussed below.

One further problem leading-up to crisis in a recession is the risk of over-trading.    Over-trading is a process where there is an imbalance between growing a business and ensuring the right level of finance is available to meet the new trading conditions. Over-trading becomes a much greater risk where your business relies on credit sales, and/or has to pay suppliers faster than customers pay-back trade debts.

Without thinking about the over-trading problem, you can rapidly hit a liquidity crisis in a recession where, for example, your demand falls, or bad debt levels increase, or customers slow down repayment on trade debts. You might even find you cannot insure your trade debts, or obtain satisfactory invoice-discounting facilities or trade guarantees (by banks) to ensure suppliers are paid as per your contracts.    Once you are in this problem, cutting costs could lead to severe damage to your underlying business from poor quality and service, or greater customer dissatisfaction. Therefore you must think-through the implications of your cost-cutting decisions, rather than make untargeted emergency cuts across the board.

You will find that with good financial resources (liquidity), your organisation will have more options to (a) absorb shocks, or (b) give management time to handle risk situations that they did not anticipate when business was going well. In a recession, management critically needs to maintain shareholder/stakeholder confidence in them; and if this ingredient is missing, the risks of failure are increased.

Pre-existing handicaps will make it difficult to absorb shocks in a recession, for example, if the organisation has high levels of:
- interest (on borrowings), relative to cashflows; or
- gearing, ie high borrowings relative to shareholder capital.
If these handicaps apply to you, your management should take steps to refinance or restructure borrowing terms before problems appear. Otherwise, you will be at risk of creditors (with perhaps no interest in your long-term survival) disrupting or preventing a viable business strategy.

If loan facilities are needed but not available (for a considerable period ahead), you may need to consider raising further shareholder capital as a cushion to safeguard the future.   Delaying consideration of this can also be fatal to long-term survival, or create circumstances for forced sale of all/parts of your business.

Recessionary problems that can arise with little prior notice, include:
•    increases in bad debt levels, or delays in settlement of debts,
•    sharp [unexplained] falls in demand,
•    key suppliers or contractors going bust,
•    legal disputes that soak-up management time,
•    hard-nosed demands from [key] customers for better terms, or
              extra services at no extra cost,
•    planned product roll-outs not going to plan,
•    employee demands for higher compensation,
•    rapid inflation in input or distribution costs
•    key employees defecting to competitors, (bad morale, or rumour spreading) .
One or more of these types of problems can cause huge damage on your business activities, divert management attention from regular day-to-day duties, or constrain corrective action. Clearly, good judgement is needed to allocate scare resources to the right projects.

During an economic boom, management may have escaped from the bad consequences of ‘slow decision-making’ and ‘taking the eye off the ball’, but in a recession, just like water will find structural weaknesses in a building (and can do damage), the effects of earlier failures and omissions will reveal themselves by problems emerging from nowhere.   Your management therefore needs to be emotionally ready for speedy (not hasty) corrective action, and not allow a culture of fear or paralysis to dictate their own and employees’ actions/conduct/decisions.

Reading the news will tell you about well-known companies that were not prepared for tough conditions and have gone into administration, liquidation, or forced-sale.

    ---- continued …..

2. Availability of financial resources & survival plans

Or send an email to S.Saleh@btinternet.com

Note: click on your browser’s ‘back’ button to return to the home page, or click on the Home link above

For a copy of the full document or more information,

or if you want to receive a self-diagnostic questionnaire

to evaluate your business planning needs, capabilities
and areas to work on, please contact:

Mr S. Saleh on phone: 020-8202-9796 (London)