Small business advice by the Genghis Khan guide

As the economic gales continue to blow, veteran small business survivors argue getting clever about sales can help firms get through tough times.Small business advice by the Genghis Khan guideSpeculation about what commentators call “meltdown” merely ramps up anxiety levels, as do most attempts to apply graphic metaphors to economic, political or social upheavals.

So instead of probing the economic gloom, businesses all need to turn their attention to survival.

Most of us do not live in that world of financial frenzy that makes the headlines all the time, and our connection with politicians and policy makers is pretty remote.

The only thing you can do in a crisis that groans on and on, as this one is doing, is to knuckle down and get on with the job.

That is true of big organisations, but even truer of small businesses who can think themselves into a blue funk every time they read the headlines.

Thirty years ago, apparently over one weekend, Brian Warnes wrote a book called “The Genghis Khan Guide to Business”.

His message was a basic one: cash flow is king, and – strange though it sounds – many business people do not understand where the true profitability of their business lies.

Many businesses concentrate on increasing turnover. His advice was quite straightforward:

“Understand your business, measure where your break even point is and unless you close the gap you’ll go bust.

“If you drop break even point to under today’s sales, however grim they are, then you build almost indefinite life into the company and it can see through a very long recession.”

They fail to realise that some, maybe much, of the work they take on or the orders they book may suck up overheads without delivering proper profits.

In particular, some small businesses manage to ignore the cost of working capital: what it costs to get the raw materials in goods and services that the business needs to function with.

This ignorance of the cost of working capital goes some way to explaining why the end of a recession is normally accompanied by a rise in corporate bankruptcies among small and medium-sized businesses.

By luck or good management they have edged their way through the downturn, conserving cash and paring expenses.

But then comes the notorious green shoots of recovery and new orders start to come in.

That is when a hunkered-down firm suddenly needs more working capital to restart a mothballed production line or purchase extra raw materials.

And that is when companies are particularly vulnerable to orders that go wrong, or late payers, or banks still under orders from head office not to take risks.

The green shoots of recovery are a dangerous time for a business, but so is the here and now of recession lingering on, maybe recurring as we go into 2012.

November 22, 2011  Tags: , , , , , ,   Posted in: Building Businesses, Business Growth, Business Profits, Business Survival, Business Win, Growing Business, Uncategorized, Winning Business

One Response

  1. venapro - January 22, 2013

    Hello, just wanted to say, I loved this blog post. It was practical.

    Keep on posting!

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