how to make a profit during a double dip recession
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How to make a profit during a double dip recession
Chris LillySenior Partner
Mayfield Business Group (MBG)
What is a recession?
• A period of general economic decline typically defined as a decline in Gross Domestic Product (GDP) for two or more consecutive quarters.
• Typically accompanied by:
– consumers cut back on their spending
– decline in revenues for some businesses
– drop in stock market values
– increase in unemployment
– decline in house prices
What is a double dip recession?
• Initial recession followed quickly by a second one
• Occurs when: – growth after the first recession is weak– further bad news e.g. tax rises, ongoing reduction in consumer spending
– weak exports due to slower recovery abroad
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10
% changein GDP
How recessions affect businesses
• Customers stop spending
• Customers reduce / defer their spending
• Customers spend elsewhere
– buy cheaper products
– use outsourcing
• Banks
– lend less
– charge more interest
– require more guarantees for loans
Successful sectors in a recession
• Repair firms– Car repairers, shoe repairers
• Low cost shops– Pound shops, low cost supermarkets, low cost second hand cars,
low cost clothing shops
• Businesses selling staples– Food
– Clothing that is not readily repairable eg underwear, socks,
• Businesses offering good value for money– eg Morrisons
• Up-market restaurants
– Where the wealthy still spend their money!
Cash more important than profit
Why is that?
• Can’t pay bills = business failure
But note that profit is important for:
• Shareholders dividends
• Re-investment
• Reserves
In difficult times cash trumps profit!
“Revenue is vanity – profit is sanity!”
Definition of profit
Typical %
100%
50-75%
20-30%
10-30%
Total revenues
Gross profit
Operating profit
Net profit
Direct costsEg cost of sales
Indirect costs egManagement,Admin, Sales & marketing costs etc
Other non-operating income,Interest income etc
Reserves, Dividends
£
How to maximise profits
• Maximise revenues– Increase prices
– Increase quantities sold to each customer– Increase number of customers
• Minimise costs– Direct
• Products bought in
• Raw materials• Production costs
– Indirect• Sales and marketing• Administration and management
• Overheads
Increasing sales
• Sell more of same– volume discounts (also BOGOF, 3 for 2 etc)
– time related eg sales
• Sell more different products– upselling– loyalty schemes
• Sell to more customers– increased visibility– word of mouth promotion– introduction schemes
• Increase prices
Decrease direct costs
• Negotiate lower prices with suppliers
• Find cheaper sources e.g. China, India
• Reduce production costs– improve operating efficiencies – just in time manufacturing– reduce unit costs
– reduce production staff / part-time working
• Outsourcing
• Insourcing
Decrease indirect costs
• Reduce non-production staff– number
– hours worked
• Pay cuts
• Get best prices for energy, telecoms, insurance, etc
• Downsize
• Smaller / fewer premises
Managing marketing costs
• Reduce them?– Cutting marketing costs reduces cash spent– But such cost-cutting might reduce sales and revenues?
• Increase them?
– Increased marketing in a recession might increase customers / revenues
– Maximise cost-effective marketing techniques eg referrals (word of mouth)
Marketing strategies- word of mouth
– Networking
• Chambers of Commerce• IoD, etc.
• First Friday
– At networking events you may sell to • the person you are actually talking to
• the people that they then talk to
• other people they know
– Let customers do the selling for you - ie referrals!
Marketing strategies- B2B
• Direct approaches – especially by letter
• Email / call / meeting
• Advertising
– trade magazines etc
– ‘A’ boards (trade boards)
• Press releases
• Articles / white papers
– magazines, web-site etc
Marketing strategies - collateral
• Brochures
• Web-site
• Business cards
• Brand
• Logo
• Trade boards
Financial strategy
• Improve cashflow– Cash with order– 30 day terms
• Charge interest for late payment
• Chase bad debts (use small claims court if necessary)
• Minimise tax (use all allowances, capital / R&D tax credit etc)
• Reduce debt (if appropriate)
• Reduce interest payments (especially if high interest rates apply)
• Change bank (for better terms)
Funding in a recession
• Debt finance
– Enterprise loan guarantee scheme
– Banks
– Family & friends
– Grant funding (usually needs to be matched)
• Equity finance
– Angel funding
– Venture capital funding
Tips for raising funding
Need a coherent and compelling Business Plan:
– Need to show viability of business eg
• Good growth prospects
• Confirmation of adequate customer
demand at the given prices
• Ability to repay debt with interest
– Explain why extra cash is needed
– If VC or Angel funded then need to show Return on Equity
of >>5 within 3-5 years
About MBG
• MBG was established to help small and medium sized businesses be successful.
• The MBG team comprises business experts with over 100 years of combined business experience and includes qualified business advisors (Business Link / SFEDI approved)
• The MBG team and its associates have expertise in every business functional area including:
– sales and marketing - finance – business strategy - human relations – business development - R&D – operations - engineering – manufacturing - health & safety etc– legal
MBG offers:
• Specialised business advice
• Preparation of business plans
• Raising funding
• Mentoring and coaching
• Training
• Business support
• Telephone support service
• Business fact sheets
Before you go
MBG is offering a free business clinic today in the hall from 1200 -1600 hrs (30 minute slots available)
Please leave your details if you wish:
• To sign up for a free business clinic session
• To register for future seminars
• To receive future e-mailings from MBG
• To join MBF (free membership)
• To benefit from the services of MBG
Contact details
Roger Stone
Mayfield Business GroupWarren Bakery,
Fletching Street,
Mayfield, TN20 6TW
Tel: 05603 44 49 90Mob: 07776 14 40 56
Email: roger.stone@mayfieldbusinessgroup.com
Website: www.mayfieldbusinessgroup.com
Today’s slideshow is on our web-site
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