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When recessions prove a rude awakening

A retail business that’s sitting in a comfortable rut can get a rude awakening when tough economic times hit.

For those that need to lift their game, a recession can provide the moment of truth. It’s when a business is likely to realise that its KPIs are not what they should be

With KPI monitoring in place, businesses can determine whether they should be cutting wages or stock, seeking better buying deals, or moving from permanent staff to contracted, casual labour, etc.

When I’m called on to help a business, I start by comparing the company’s financial details with KPIs that are typical for the retail sector. This helps to identify potential quick fixes – wages, for instance. The effects of laying off staff or cutting their hours need to be measured, to ensure they’re achieving what they’re supposed to. 

However, short-term solutions are only the beginning. Businesses then need to look at other major costs. Determining whether you’re over-stocked with items whose market has shrunk, or need to branch out into newer, more popular lines, takes a bit longer – months, in fact. And making decisions on such issues is likely to be important to the future of your business as a whole.

Above all, it’s essential to avoid the ‘slash and burn’ mentality. Cut costs by all means, but not to the point where you can’t come back quickly. Markets generally move fast when they rebound, and you need to be sure the underlying structure of your business remains intact, so you can respond to the upturn.

The only way to address such a crisis sensibly is to examine the current performance of the business and what the immediate future looks like. You need to know the strengths and weaknesses of your particular marketplace, and capitalise on them, making changes necessary to get through the tough times.

Then there are your overheads; we’ve already mentioned wages, but a business that’s renting its premises needs to factor that in as well. Your location could be in a declining area – do you move to a place where business is better, or try to negotiate a more favourable rent? What sort of wholesale prices are you paying? Could you be squeezing better deals out of your suppliers? Could you benefit from new equipment or technology, specialist advice or skills?

Don’t expect to be able to apply any standard formulas to your particular situation. Your product or service offering, the vagaries or your particular marketplace, your location – all combine to produce a unique profile. Nor can all the lessons learned from previous economic crises be applied to a current situation. Every recession is different.

Nor should you shrink yourself entirely to a ‘back to basics’ mode. Keep those bright ideas for expansion in mind for when the economy improves and the marketplace is likely to be more receptive to something new.

But above all: get to know your KPIs, and track them constantly. Information is your greatest resource.

Teresa Hooper is a partner at Johnston Rorke Chartered Accountants in Brisbane and heads up its IT division JR.bizlink, a Greentree partner.

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