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September 2008

Credit Crunch enters the Lexicon

So the Credit Crunch has entered the Oxford English Dictionary - lets hope that doesn't mean its here to stay.  But I think it is here for a while - so here's 9 things to think about when managing through it.

Cash is King (sorry that's two cliche's already taken along with Credit Crunch)  It is more important than ever to focus on what matters; key metrics.    Look closely at debtor and creditor days.   Take as much credit as you can, be ruthless in collecting.  Think about that new exciting contract not just in terms of profitability, but its effect on your working capital cycle. 

Cosy up to the Bank now more than ever you need to manage that relationship.  Keep them up to speed - they hate surprises.  And they'll have plenty of other businesses worrying them to keep them off your back.   Equally if you do need more cash don't be afraid to ask.  They all say they're still open for business - and not just for deposits, although they all seem to be very keen on deposit business now!

Revisit the big picture

Does your strategy need revisiting in the current climate.   Are there non-core assets you should realise?  Conversely if you have cash (or borrowing capacity) now make be a good time to look for value acquisitions.  There might not be bargains yet, but there is value to be found for strategic buyers.  Contact and M&A adviser to help you search, or to register your interest in any acquisition opportunities that may be a good fit for you.

Watch the detail

Cut costs.    The big cost is people, and sadly this may mean letting folk go - make sure you cover all the HR angles and that you hang onto the folk you will need longer term. 

Don't pay too much tax

This is most businesses other big cash drain - review your tax position, and operating structure for tax.  As my tax colleagues would say make sure your corporate tax strategy aligns with your business tax strategy.

Motivate appropriate behaviour

Maybe its time to incentivise people on cash management - especially collection.  I've seen this work very well in a manufacturing business I worked with some recently, where a key employee was given a stonking bonus linked to collection of old debt.  This debt wasn't bad yet (mostly) but it was a hassle to collect, lots of small items and with returns issues.  Around 75% of it was collected, and 25% validly written off.  The bonus payout was 25% of collections.  Happy faces all round.

Project your own assets

If all of your wealth is in the company - think about de-risking by taking more out.  If you are planning a short or even medium term retirement you could do a partial management buyout or recapitalisation deal.   This could get cash into your own pocket tax efficiently.  Then of course there is the problem of where to reinvest it in uncertain times - not my field - but at least you can have eggs in a variety of baskets, or even under the bed (a mixed metaphor too far I'm afraid - sorry).

Keep your spirits up

I think there is also a psychological aspect to all this.  The media and all the city types are in the depths of despair right now - and they make one another worse.  Local businesses are fretting, but broadly just getting on with it.  You could do a lot worse that to get the basics right, and of course to concentrate on cash.