Risk management the secret of survival the age

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Risk management the secret of survival the age

  1. 1. Entrepreneurship Ref: 0009Risk management the secret of survivalChristine ChristianMay 7, 2009Recession is coming but business can still prosper.THERE is no point denying the obvious. The outlook for the rest of this year is gloomy and Australian businesseswill be confronted with their greatest challenge in 17 years.There is also little point in trying to hide from the bad news. Hiding may assist in keeping a positive outlook but themore likely outcome is that you miss important information that can help you manage your business through thecrisis. This information can help you avoid excessive risk and identify the opportunities that exist. This is true for theentire customer life cycle of marketing, credit risk and cash-flow management.The numbers outline just how challenging the environment will be over the next year. World growth forecastscontinue to be downgraded by the World Bank and International Monetary Fund. Dun & Bradstreets own globaleconomic and risk data has been pointing to a severe global recession for some time.There was never a chance that this global recession would not reach Australia. No matter how robust our banks,how few subprime loans exist and how strong our regulatory system, the reality is that we are heavily dependent onglobal capital markets for economic growth and the freezing of those markets was destined to have an impact.This is showing through in our Business Expectations Survey. All the key indices, excluding selling prices, are athistoric lows, with employment expectations particularly concerning. It is widely accepted that Australia willexperience a recession this year, if we arent already in one.This is having an impact on Australian businesses. Since October - the beginning of the first quarter of negativeeconomic growth in 17 years - Dun & Bradstreet has seen a deterioration in the risk outlook of nearly 130,00businesses.Equally concerning is that during this same period 150,000 businesses have been rated a higher chance of beingdelinquent in paying their bills.The impact on cash flow is already evident, with D&Bs trade payments data showing business-to-businesspayment terms at their highest level since 2001 and continuing to rise. We have also seen a jump in the number of For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  2. 2. debts referred for collection and much of this debt is being referred at an earlier stage of the collections cycle thanbefore.This is a clear sign that cash flow is becoming a challenge for many businesses and they are now focused ongetting cash in the door as early as possible.So how can this flood of bad news help? Firstly, by understanding the scale of the problem and the areas of theeconomy in which the negative outlook is most prevalent you can avoid exposing yourself to excessive risks.This is different to attempting to avoid risk exposure. Risk is a part of any successful business strategy. Thechallenge is having a clear understanding of your risk appetite and the ability to determine whether your existingand expected future exposure is consistent with this appetite.This means risk-checking new customers as well as existing customers. With 130,000 businesses beingdowngraded, it is highly likely many are your customers.Secondly, the bad news can spur your business to smarter marketing. The tendency in a downturn is to cutmarketing budgets. This is rarely the right approach. A downturn presents opportunities for strong businesses toincrease their market share.This means continuing to market to new customers but using the downturn to bring new disciplines to themarketing process. There is little point winning new customers that dont pay their bills on time or at all. Thereforethe marketing strategy needs to have a clear focus on marketing to prospects that represent a good risk within yourrisk framework.Marketing databases that havent been reviewed in the past month or so probably contain prospects that representa dramatically different risk to when the database was developed.Thirdly, the bad news can be a key driver in improving your collections processes. By being aware of paymenttrends and priorities, and the emerging risk of late payment by once-reliable customers, you can initiate a plan toidentify those customers that are at risk of paying late and put in place strategies to work with these customers tomanage their payments.Ignoring the increased risk that comes with 150,000 businesses being more likely to be delinquent in paying theirbills doesnt mean you wont find out. It just means youll find out when it is too late.The truth is that as bad as the economic outlook appears, most businesses will survive the crisis, albeit with a hit tosales and revenue. There is also the fact that every downturn results in some businesses emerging on the otherside in a stronger position.There is no secret to what allows those businesses to emerge stronger. They are generally businesses that havepaid close attention to their fundamentals of tight risk and cash-flow management. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  3. 3. Rather than ceasing to attract new customers, they have also used their smarts to identify those prospects thatrepresent the best opportunities and have acquired market share at the expense of competitors that have failed tomanage the fundamentals. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009

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