How can you recession-proof

your business?

Duncan Bannatyne’s

Seven-Point Plan

The Seven-Point Plan

We’re still in challenging times for business. If the market has

changed, has your business responded to that change?

Here are seven practical and timely points to make sure your

business is as robust as possible, from entrepreneur and

Dragons’ Den investor Duncan Bannatyne.

MAXIMISE AND MINIMISE

You may have a stand-out brand, or a fantastic marketing campaign or amazing products. But they won’t count for anything unless you also have a strong balance sheet.

In a recession, cash really is king. In business survival, the first task is the most basic:

maximise your income and minimise your costs.

PERFORM A SENSITIVITY ANALYSIS

A sensitivity analysis is one of the best defences a business can have against going under. It is a really simple tool that lets you understand how robust your business is.

Look at each of your major costs, and each of your major income streams, and see what would happen if one of them went down – or up – by X%. By manipulating the figures in a spreadsheet, you can see how sensitive your business is to rises in costs, or falls in revenue.

PERFORM A SENSITIVITY ANALYSIS

This is particularly useful if your business is heavily geared – i.e. you have a lot of debt – since you can be particularly vulnerable to changes in bank lending rates.

Some business owners are comfortable with a very narrow margin, but I have always sought to give my businesses a buffer of 40%.

SELL OFF ANY NON-REVENUE-

PRODUCING ASSETS

The business equivalent of selling the things in your attic that you are never likely to use.

In the first instance, look not so much for the assets that will release the most cash, but the assets that, once disposed of, will cause the least disruption to the business.

SELL ASSETS THAT YOU CAN GET

10x PROFIT FOR

This isn’t a fire sale. Do not sell anything for less than the best price.

STREAMLINE YOUR BUSINESS

Although the Bannatyne Group is made up of four separate companies, the business effectively operates as one company.

It makes no sense to have separate back end

services, so things like pay roll, legal and HR are all handled by Bannatyne Fitness.

Look for ways in which you can streamline

in order to reduce costs.

SALE AND LEASEBACK

If you own the freehold of a business property, a leaseback agreement involves selling the freehold to another company and then leasing it back from them at an agreed amount each year.

Short term gain: Money raised from selling

the freehold Long term pain: Are you going to be vulnerable

to rent rises?

SALE AND LEASEBACK

The financial advantage: Let’s say you run a company that makes £15 million in profit a year, but you have loan repayments of £10 million a year. You’ll pay 23% corporation tax on the £15 million, leaving you with just over £1.5 million. Say you sell your freeholds and instead of repaying a loan you pay rent instead.

You still make £15 million a year, but you pay £10 million in rent; now you’ll only pay corporation tax on the remaining £5 million, leaving you with £3.85 million after tax. Although your pre-tax profits drop from £15 million to £5 million, your cash flow more than doubles.

ASK: WHAT’S THE WORST THAT

CAN HAPPEN? This may not be something you want to think

about, but really successful businesses will confront this question. Once you’ve done that you can put strategies in place to cope in the event the worst really does happen.

If, for example, you rely on a few key clients and

having one terminate their contract would be a terrible blow, you can build three- or six-month notice periods into your contracts to give you time to replace clients that you lose.

The Seven-Point Plan and other

business advice can be found in

Riding the Storm, from bestselling

author and Dragons’ Den star

Duncan Bannatyne