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PKF Australia

Accountants and Business Advisers

It could be time to make the tough calls

It could be time to make the tough calls

Posted 24 Oct 13 by Nick Falzon

If you are experiencing increasingly tough times, it could be appropriate to make some tough decisions, and streamline your operations even further. This article looks at some strategies to employ if you have started to fall victim to the economic downturn.

When cash reserves are reaching a critical level, there may also be a small amount of pressure from creditors. The appropriate action to take in this case is to put a stop to all non-essential spending. The other major actions are:

Free up cash

Make sure you have a critical review of your cash flow forecast over the next 6-12 months, including undertaking discussions with your bank and shareholders as to what additional short term facilities might be available to you. If you do not have a cash flow forecast, it is imperative that you get one to understand where the business is headed. Other things you should do are:

  • Ensure that you are checking your cash balance and chasing any outstanding debtors daily
  • Postpone all non-essential spending, and defer or cancel projects that will not bring immediate returns
  • Adjust capacity and inventory levels (if appropriate)
  • Sell surplus equipment

Rationalise overhead costs and improve efficiency

You may have already implemented some strategies however the next phase includes:

  • Reduce staff levels between the CEO and the 'floor'
  • Consider other redundancies for nonessential positions and cross train staff across multiple disciplines
  • Consider subcontracting from competitors rather than employing staff
  • Reduce inventory levels and sell surplus stock for cash
  • Reduce capacity
  • Eliminate shifts or substitute overtime and weekend schedules for shifts rather than penalty rates
  • Insource production to fill unused capacity
  • Renegotiate long term contracts
  • Consider changing to lower cost materials

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