The recession has taught small company owners many vital business lessons, such as the need to diversify, the importance of an accurate budget and that the quality of a deal is more important than the volume.
When the economy was performing well people were worried about the number of deals that they got through the door, how quick they got them in, delivered them and got them back out. However, I've seen a definite shift in business towards concentrating on good quality business deals.
I've never before heard the word ‘margin' mentioned so often and in such an educated way in the last six months than I have in the last five years. The downturn has taught businesses to focus on the right deals. I said one of my favourite sayings to a business the other day: some of the best deals that you do are the ones that you don't do at all.
This business had seen their margin squeezed down to a stage where all a particular contract meant for them was activity. They were working to a breakeven point, there was no profitability in the deal.
Firms must accurately calculate the cost of a product. The naive person works out how much it costs to put together; the business person works out all the labour costs and the margin that needs to go into it to turn a profit.
One of the biggest lessons the recession has taught companies is the need to diversify their business. A lot of firms were reliant on a few big contracts to carry them through, but this meant that if one contract ended it seriously affected a company's turnover and cash flow.
Since June last year we've helped 101 businesses back from the point of administration - if we hadn't have helped them they would have gone bust. The most common denominator was that the firms did not have a budget, or if they did it was not accurate with what was coming into the company in the current times.
A budget is actually very simple to do. It's just a case of being very aware of your figures, working back from that and understanding what the business actually needs to achieve on a daily basis. This is an absolute must in the current economic climate and more SMEs are aware of this than they have ever been.
I actually think that small businesses are the best place to be right now in the current market place. I am a champion of small and medium-sized companies; they are the backbone of this country and the lifeblood of the business community.
Small firms can make decisions quickly to adapt to changing market conditions and ensure that their business is stabilised. Decisions like this can take several weeks to be approved and implemented in larger organisations, and this can make the difference between a firm surviving or going under.
Although I'm not convinced by those talking about ‘green shoots' of recovery - we will know when we are beginning to emerge from the recession when the base rate rises and loan-to-value with mortgage lenders starts to go up - I do not expect the economic situation to get any worse.
If small business owners have weathered the economic storm so far then - as long as they don't forget the lessons that the recession has taught them when the deals begin to come in - they should survive thanks to the measures that they have implemented.
For more information please visit www.ruthbadger.com
