1. The journey for every business is different. We listen to you and
your objectives before proposing a plan for survival and growth.
We work alongside you and your team and focus on protecting
and improving your wealth.
Published on 12 December 2011 by Tony Groom
Build a Flexible Business Model to Ensure Perpetual Survival
While businesses might be concerned about a eurozone Armageddon, whatever the
outcome they will need to ensure survival for the period of austerity that is likely to
characterise the next decade.
Although growth is desirable, and has been the purpose for many businesses, a more
realistic objective in times of uncertainty is to stay in business for the next five years.
Arguably the best way to achieve perpetual business survival is to avoid running out
of cash. This involves examining all cash commitments and where possible turning
fixed costs into variable ones so as to reduce the breakeven level of sales necessary
to cover overheads and fixed obligations. All too often hitting sales targets can only
be achieved at the expense of margins. The flexible business model means that you
no longer need to take on unprofitable work.
Long-term fixed obligations can be anything from fixed-term rents, hire-purchase or
lease agreements, repaying loans, servicing interest, supply contracts and staff
employment. The common examples where companies have taken on such
commitments tend to relate to: offices, plant and machinery, IT equipment and
software, vehicles, signage, furniture, printers and photocopiers, mobile phones and
telephone systems.
Most companies also fail to cancel or at least review contracts that automatically
renew, such as: IT equipment and plant leases, life insurance, medical policies,
employee benefits, subscriptions and membership, servicing and maintenance,
office and window cleaning, sanitary towel and waste removal, portable appliance
testing (PAT), health, safety and fire extinguisher inspections and so much more.
K2 Business Partners
Providing Oxygen for Business
Call Tony Groom on 0844 8040 420

2. A recent example was a company that continued paying GE Capital for seven years
after the minimum three-year term of a lease purchase agreement for an expensive
computer server. GE Capital was not at fault as their agreement stipulated three
months notice of termination after the minimum term. That the server was no longer
being used was irrelevant, no review of expenditure had been carried out to
highlight this and many other examples of unnecessary payments.
The key message is to review every payment and check whether it is necessary and
you are not being overcharged.
While it sounds counter-intuitive, businesses often make more money by reducing
sales. It is worth looking at the quality of contracts and the quality of customers.
Some business is more trouble than it is worth, or takes up more time than can be
justified or is simply not profitable. Reducing sales can mean a company needs
fewer staff, lower overheads and fewer resources such as a smaller factory or office.
Lower sales generally mean that you do not need as much working capital tied up in
funding the business.
The benefits from focusing on only those contracts and customers that provide an
adequate profit, that pay well and pay on time can be considerable. Gross profit
margins are increased, overheads are reduced by not having to chase payment
and less cash is needed to fund pre-sale payments and post-sale credit.
While many private householders seem to have got the message about cost
comparison and now regularly switch energy, mobile phone, internet and landline
suppliers, all too many companies are focussed on chasing sales (and tails) to review
costs and find ways to reduce them.
Any review should also look at other ways to cut spending. Huge savings can be
made to reduce travel and communications costs such as using internet-based
phone and video conferencing facilities like Skype or VOIP services. Most landline
phone numbers can now be ported to an internet service provider, some charging
as little as £1 per month per number and little more as a fixed cost for all outbound
calls.
It can be tempting to save cash in the short term by entering into a lease or rental
agreement. However paying such contracts can become a real burden if business
declines. Indeed many companies are finding themselves tied to long-term
contracts they no longer need.
Business turnaround specialists usually find themselves having to adopt a triage
approach to cost cutting as they tend to be brought in when a company is running
out of cash. It is rarely ever too late as they can crystallise contract termination
liabilities in a Company Voluntary Arrangement when the company cannot afford
them. However it is preferable to take action early and carry out regular reviews as
part of a programme of continuous business improvement.
K2 Business Partners
Providing Oxygen for Business
Call Tony Groom on 0844 8040 420

3. The flexible business model is based on a principle of not having to pay out cash if
there is no cash coming in. It ensures survival whatever the circumstances. The knock
on effect from the financial collapse of Dubai World meant that a lot of firms did not
get paid. One design company with high overheads due to payroll commitments
reinvented itself to keep most of the team together, albeit unpaid. As partners they
were able to survive for over six months before any work came in. It was tough at the
time but they are now thriving.
Survival taps into human reserves that few are aware of. It needs leadership and
teamwork but a focus on improving profitability, on reducing costs and on
converting fixed overheads into variable ones means that a business can achieve
perpetual survival.
We help and invest in clients to develop strategies that protect the business and create wealth. Our
team has worked for over 20 years to set hundreds of businesses on the path to profitable growth.
More Free Resources for Directors and Business Owners in Difficulty
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We invest in and provide experienced advice to directors and owners
We help develop and implement growth strategies
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Need Help – Call Tony Groom on 0844 8040 420
K2 Business Partners
Providing Oxygen for Business
Call Tony Groom on 0844 8040 420