How to prepare for changing market conditions

During recent years, the business environment has experienced various disruptions, where the difficulties caused by the pandemic are shifted into rapid energy and material price increases. Changing market conditions require careful planning and preventive actions in order to mitigate potential negative impacts. Although it is impossible to predict the future, there are numerous actions the entrepreneur can take to adapt to the changes in the business environment.
Review and optimization of expenses
It is not always possible to quickly decrease expenses when the turnover levels drop, that way potentially causing significant losses and a lack of working capital. It is essential to be aware of the largest expenses and hold them on a healthy level in comparison to the turnover. It is beneficial to annually review all of the regular invoices and rethink if all of them are necessary. Quite often workforce creates the largest payment - it is important to check the team’s efficiency and redistribution of duties on time. One must also take into account that successful business continuation might also require such unpopular decisions as laying some employees off.
Revenue planning
High sales turnover today does not guarantee a stable income tomorrow. It is very important to maintain regular contact with the main clients and suppliers, that way monitoring the partners’ future plans and potential changes in sales volumes. If the company’s operations depend on cooperation with one are a few large clients, it is also important to regularly check the clients’ financial stability and the payment terms. If the additional research reveals a worsening of the client’s financial situation or other alarming signals such as increasing tax debt or publicly registered late payments to the suppliers, we advise reviewing the cooperation and payment terms with the particular client. The diversification of clients and products can require more time; therefore, it will not be a quick crisis management strategy, but a long-term strategy that the company should take up to gradually reduce the dependence on key clients. Another important aspect to reduce business risks can be the diversification of products and services so that the business is not dependent on one specific product or service. Additionally, Capitalia's free-of-charge planning tools can be useful to plan the company’s cash flow and income.
Reviewing financial liabilities
Under dynamic market circumstances, settlements with lenders can raise numerous issues. It is essential to monitor credit lines and overdrafts, whose terms end soon, and we encourage the entrepreneurs to early begin the discussions about the annual extension. If the financial burden already seems too large, we encourage discussing potential schedule changes. On the other hand, if the company has a low level of financial liabilities or does not have them at all, additional short-term financing in the form of a loan or credit line can increase the security and reserves for unplanned or seasonal expenses.
Decreasing debtor risks
The fluctuating economic situation can affect the clients’ payment discipline, which can cause loss of working capital and losses in the form of unrecoverable debts. Capitalia has previously summarized and published various pieces of advice for decreasing debtors’ risks, and we invite entrepreneurs to use this advice in their daily business operations. One must perform not only regular control of existing debtors but also careful research of new cooperation partners before offering the option of delayed payment.
Removing unprofitable products and services
If the company manufactures, sells or provides a wide range of products and services, it is important to be aware of each product or service category’s profitability on its own. Sometimes the companies continue producing unprofitable products due to a long-term cooperation or due to other economically invalid reasons. If necessary, we encourage removing unprofitable products or services, that way also reducing the costs of manufacturing and providing these products.
Published by at. 15:12