Credit Crunch

Credit Crunch - Saving Money

If you are struggling with credit crunch regular, up-to-date and accurate financial accounts are the priority. Up-to-date means no more than a month old. You need to be able to identify sales, gross margin, and overheads. A graph showing your year-to-date with comparisons with last year is useful so you can see the trends and makes sure you’re not mistaking seasonal trends with a crash in the economy!

From this information, you’ll be able to see if you’re profitable or not and if you’re not, what action you need to take. Even if you are profitable, it is worth reviewing your business for vulnerability.

Credit crunch – Cash Flow management

Your next step should be to review your cash position. Produce a cash flow forecast for the next few months. Running out of cash is usually the first problem to hit a business when times get tough, and a forecast will predict the moment this will happen: it’s often when VAT or taxes are payable.

To avoid running out of cash, you’ll need to be on top of your credit control, which means taking steps to make sure you get paid. You’ll also need to keep your bankers on your side too: talk to them before they speak to you.

If things are getting tight, start selling everything you don’t need to survive. Old office equipment often ends up lying around cluttering up space, so why not put it on eBay? If you have a non-core business activity that isn’t generating good revenue, consider selling it to one of your competitors who would find it profitable.

By good cash flow management like this, you’re buying yourself more time to fix the profitability problem if you have one. Fixing the profit problem will feed through to fix the cash problem.

Credit crunch – Review Your Business

Take a good look at your business, your customers and your suppliers and review each component individually:


Review every customer for the price, gross margin, and credit risk. Look for customers who aren’t profitable and put up their prices aggressively.

Credit Crunch – Are you Invoicing for Everything you do?

It is incredible how many businesses don’t ensure that all the work that is carried out for a customer is invoiced. Sometimes small costs aren’t billed on to the customer because of the perceived goodwill this will generate with the customer. Still, these costs can quickly build up and compromises the profitability of your business.

Make sure that everything you do for a customer is charged for. Remember, not charging for something – however small – is a direct hit on your profit.

Credit Crunch – Margin

You need a gross margin to pay your overheads. There are two things you can do to improve it: raise prices or lower costs or both. Ask your suppliers for better prices or improved credit facilities. Look at if there are more cost-effective ways of providing your product or service to your customer. If you cannot be profitable with a customer, and they won’t accept a price rise, lose the customer.


Now is an excellent time to review your overheads. Tough cuts in expenditure, often means ending pet projects, or the departure of members of staff. It is when crisis management tests you as a business leader. Whatever has to go, ensure it goes straight away: inaction and indecision are common reactions among owners when businesses are in trouble. It often leads to the unnecessary collapse of the company.

Credit Crunch – Investment

In good times, you may have been able to take money out of business. In the bad times, you may need to put some back in to enable the company to continue to trade. Of course, this is always when it’s hardest to come up with the money, so line up your financial options in good time.

Credit crunch – Management

If your business is large enough to have a management team, make sure you have the right people in place now. These people should be the people who you know will survive any changes to your business. Share your vision about what your business needs to look like to survive and agree to an action plan and timescale with them.

If your business is smaller and it’s just you in charge, act quickly and decisively to reshape the business to a profit.

When things start to go wrong, many members of staff panic about the uncertainty of the future. They often think failure is inevitable, which in turn makes failure more likely. Recognise this quickly and persuade them there is hope. As the leader, you’ll have to work extra hard to ensure you achieve successes – however minor they may seem – until your staff can see that the business can survive.

You may find some staff digs their heels in, hoping things will stay as they were because that looks less daunting than having to accept change. If they resist your changes, you may have to tell them that their choice is to change with the business or to leave.

Act like a victor

It is vital that your staff and your customers see that the business is going to succeed and grow stronger, despite the credit crunch. Find some good news stories to publish about your business and get them on your website. Talk to the journalists at relevant trade magazines and regional newspapers and get your stories in print.

You’ll find that advertising and promotions are far cheaper now than when the market is strong – and because fewer people are advertising it can make your advertising message have a much higher impact. Relevant trade shows are far cheaper to exhibit at as well and gives you an excellent chance to meet with new prospective customers.

Make sure your customers can see positives things happening in your business as well. Meet with them face to face where possible, and if you have a good news story, make sure they get to hear about it as well. It is especially true if you have to make people redundant – news like that travels fast – and it is crucial for your customers to see that positive things are happening as well.

Credit Crunch – Look for Opportunities

Once your business is on more solid ground with profits and positive cash flow, look for new opportunities. You may find competitors for sale at knock-down prices, giving you an excellent opportunity to grow your business again. Look at our short guide on finding customers; you may find a new way that you hadn’t tried before.

Further information on the credit crunch is available on Investopedia website.

Return from Credit Crunch to Small Business page.