How new business start-ups can survive the current economic downturn

It's a tough economic climate at the moment for new and growing businesses. But by cutting expenditure and being tough with suppliers, new business can thrive.

This article shares 6 “rules” for surviving in a downturn.

1. Recognise that cash is king
Manage cash - if you're out of cash and out of credit, you're out of business. I recommend to my clients that they need a solid 13 week cash forecast which is not generated from the income statement but from a detailed understanding of receipts and disbursements. Monitor trends in your cash flow to keep on top of any sticky situations.

2. Collect your money with passion
On a related point, manage receivables aggressively. Businesses are holding on to their cash longer than before, resulting in late payments. These late payments are having a ripple effect through the SME community. Receivables will trend up, and some of your customers may become troubled as well. Don't keep extending credit.

3. Don't depend on anyone
Keep a close eye on your suppliers, and have alternatives. In a downturn, some of your suppliers may become troubled as well, and you need to think about alternative sources for your critical inputs.

4. Review your expenses regularly
You can forecast expenses, you can't forecast revenue. Look for places to cut expenses. When times are good, companies tend to add staff and expenses that are nice to have, but not critical. It's time to take a fresh look at those.

Keep focus on core markets and spend money solely in those areas. Avoid putting cash and time into areas that have proven less profitable. Many companies begin by cutting advertising and/or marketing budgets. This can be a mistake.

Instead of cutting these budgets, review the methods you are using. Are there more cost effective routes to market? Does your current strategy bring in the right results? If not, rework your efforts to deliver the best possible results.

5. Don’t ignore your lenders – communicate!

If you have debt financing, stay in communication with your creditors. Don't wait until it's too late before speaking with your lender. When you are already in a crisis and haven't provided any warnings, situations may prove tricky. Maintain constant communication. It will help you should you ever need to renegotiate terms.

I work with many clients who feel an enormous amount of pressure lifted when we negotiate better terms with their creditors.

6. Profit - business survives on the bottom line

Don't worry about growing revenue. Worry about growing profit. Make sure you understand what drives profitability in your business. To spur demand, you may have to get creative with pricing and product offerings, and you don't want to put something out there that is actually unprofitable.

Consider diversifying to make the most of potential opportunities. Others' weaknesses and instability could work to your advantage. You never know - you may identify a new market.