Personal Finance | Interview Answers | Winning CVs | Beat the Recession

10 tips for saving money during a recession

This has been the recession of the credit crunch. Wherever you go, wherever you look, money is disappearing. Especially that most useful form of money: cash. Don't get caught out, get a handle on your money - your revenue, profit and cash flow - start by reading the ideas below.

SORTING OUT YOUR FINANCES

Your primary need is to get more money in, more quickly while letting less of it out, more slowly. You need to protect your margin and profit and this means you need to stop silly discounting. Instead find new sources of profitable business and other sources of funding. You need to stop the bad payers and make good money. Here's how.

1. Educate everybody (including yourself, perhaps!) about price

The good news is that it isn't really about price. Just think for a moment about the town or city in which you work. How much is it for a latte to go? Correct: a whole range of prices exists. Are they all fair and just? Yes, because people are willing to pay these prices if they seem to give value for money. So don't panic and slash prices, because you don't necessarily need to change them. What you do need to do is build value. Consider ideas such as:

Not discounting at all (e.g. if your business is a restaurant);
Reducing or even eliminating offers such as 3 for 2 (e.g. if you are a bookseller);
Reducing the generous deals for volume (e.g. if you run a consultancy).

Perhaps you're thinking, 'but everybody does it and it's expected'. However, that's why everybody's losing money and this recession will finally bring them down. Get out of that spiral of price-cutting now.

2. Educate everybody (including yourself, perhaps!) about margin

Let's say you sell a product for £100 and the cost is £50. What is your margin? £50 -correct. You now offer 20% discount. So the new price is £80. So what's your new margin? £30. And how much margin did you lose? 40% (note: not 20%)! Frightening isn't it? And so easily done. Make sure those who you allow to negotiate discount have done the calculations and know what they are doing. A deal is only any good if it is making you money. And be very careful about rationalisations such as 'this was a strategic deal', 'this will help market share'. Bullshit: is it making you money?

3. Do you really need all those deals?

Every deal can become a variation; every variation snags the system. Every snag to the system costs money. Make sure you really want those weird and wonderful deals that are being agreed. Perhaps, on reflection, you don't want the customers who insist on those odd deals. Maybe it would be worth finding customers who will buy sensibly. They are out there. Keep looking.

4. Review your terms

How many days have people got before they have to pay you? 30? What about if you made it 25? How clear are your terms? Do you actually get the customer to acknowledge them? What about charging for bad debt? Get it clear and be up front. Do you keep getting complaints about some aspect of your service? Postage? Installation?

Be honest about this with your customers. It won't frighten away good customers, but it will weed out at an early stage those who are

going to be bad news anyway.

5. Chase money at every stage

You know that lack of profit rarely destroys a viable business, but lack of cash certainly can. Ensure the customer knows when they have to pay: get them to acknowledge your terms (see 4 above). Chase them to ensure they have received the invoice and all is OK. Ask when the bill will be paid; assuming they reply that they will pay according to your terms, thank them for that. Chase them the day payment should have been received. Then chase every day until it is paid. Will that lose you a customer? No - because they need you. And if they do go elsewhere that's because they cannot pay you anyway.

6. Talk to the bank - early and often

I know you don't like your bank, nor the account person who looks after you, but forget it: you need them. Build the best working relationship you can. Be squeaky clean on keeping them informed over cash flow problems. Have more meetings rather than fewer: ask them how you can reduce bank charges. Keep asking them for better terms. Acknowledge their calls. If you are not getting proper attention ask for someone else to look after your account. Be very wary of trying to change your bank in the middle of a recession; another bank will probably not want your problems. Make it work where you are.

7. Treat your suppliers with respect

Your suppliers are having problems too. Don't treat them badly or act as if they are stupid. Get in there early and ask if you can lengthen payment terms, say from 30 to 45 days. Do it as early as possible, before others ask. But once you've done that do pay on time. If you have a cash flow problem, ring them up and offer part payment. Work with them, otherwise you might find your business is brought down not by lack of cash but by a missing component for your product.

8. Manage costs

Make sure you know the cost of everything : servicing the fleet of company cars, free bottled water, electricity, stationery - everything. Give someone the task of getting those costs down. There will be cheaper pens for the stationery cupboard, and there will be someone who is willing to do a better deal on your computer maintenance. Just ensure it is like for like and that lower cost does not mean you lose an important component or compromise quality. For a couple of months analyse expenses. Find out where the money goes. Find out who, if anybody, is signing and checking them. Introduce expenses guidelines and ask people to stick to them. Model good behaviours at senior levels; are you really above using public transport?

9. Stop waste

Heating and lighting. Photocopy paper. Too many sandwiches at lunchtime meetings. Plane tickets bought late at a premium. Hotel expenses. Give clear guidelines. Make it easier not to waste, for example get the photocopier repaired; recommend a site for booking travel tickets.

10. Ask for money-saving/ making ideas

Ask everyone to come up with ideas: make it easy for them to contribute them both openly and privately. Ask for ideas on how to save money and/or make money. Mention the ones you use and reward those who put the ideas forward. If things get very tough ask them for ideas on reducing salaries and/or bonuses for a 6-month period.


Custom Search