How do I make my business excel in uncertain times?

Reams have been written on the current global turmoil. Finally, as a small enterprise one tries to figure out as to how is it going affect ones business and survival.
The worst-case scenario shows a not-so-roseate future as expansions are held back, risk aversion grows and costs impact margins.
But is it really that bad? Not really, because no scenario is permanent.
Those who survive trying times are likely to be more successful later.
In the context, it is imperative for SMEs to plug the ‘leaks’ — or operational inefficiencies.
There is no point getting into the specific needs of sectors, for that would require a tome, not a 800-word article.
Instead, here are a few generics that need to be focussed on to survive and thrive.
Inventory management
A good inventory management would mean holding minimum inventory across the chain. In a slowing down scenario, there is a tendency to hold more in anticipation of growth of sales in future, which may or may not occur in the near future. Just desist. The better way to do it would be hold higher levels of inventory when demand slows. The inventory ratios should move consistently with sales turnover.
Credit management or debtor realisation
Like in inventory, funds blocked in post-sale activities, viz., debtors and efforts of realisation would translate into time and efforts. The entities should have documented policy-discouraging sale on credit to new customers.
The policy should ideally fix a cap on open sales policy, say, to about 30% to 40% of the total sales turnover. Further, sales to business entities of friends or relatives in whose business the client does not have any direct or indirect control should not be executed on an open basis. Such sales often not only affect the business but also sour relations between friends or relatives.
A good debtor realisation and sales credit policy would translate into minimum debtor days. The average debtor realisation consistently of more than 90 days would be risky, except where the industry is cyclical in nature and /or the sales are to sovereign customers where the industry average is of more than 120 days in view of the bureaucratic procedures.
Leverage within manageable limit
The SME business is fraught with multiple risks. As such, the leveraging of outstanding outside debt and commitments on a fixed term basis and/or at a fixed cost may turn out to be costly. As risks rise, restrict dependence on fixed term/fixed cost financing to take care of pressures from lenders to repay in the downcycle. A highly leveraged entity would find it difficult to service its debt when the profit margins are also under pressure.
A good SME would have a documented policy that it would not borrow beyond a particular level (as may be documented in the policy) and for purposes specifically laid out. Ideally, the total outside liability to networth should be less than 2 (in few cases it may go up to 3; but the same needs to be seen in conjunction with the margins normally generated). The working capital borrowing should not normally exceed 20% of the turnover.
Constant updating of technology and capacity expansion
A growing SME that is also adding value for the owners would invest/add-on in its fixed assets (mainly plant and machinery) by 20-25% and above in every 3-year blocks. This helps in maintaining quality and efficiency by reducing the operating cost.
Yes, it is easier said than done, especially when there are pressures in maintaining the topline and bottomline, but entities which completed upgradation/ expansion by FY 2007 are likely to be in a better position today.
Growth the topline
The SME must always add value to owners and investors. An SME’s actual margin may not be entirely reflected in the audited results. However, the sales turnover is normally disclosed fairly (in view of VAT/sales tax provisions). In well-run SMEs, the compounded annual growth rate in sales normally beats the benchmark of GDP growth rate plus inflation rate for the period.
For the few industries where input costs have risen more than the national inflation rate, the well-managed business entities would strive to beat the summation of input inflation plus economy’s growth rate. In current scenario, it may be difficult for most SMEs to achieve this.
The never-ending business cycle
Enterprises go through multiple phases in their life cycle, such as:
(i) Ideation or conceptualisation stage — when the idea is generated on the drawing boards and tested on a pilot scale basis.
(ii) Commercialisation — putting the idea into a running concept with returns to recover the investment and return
(iii) Growth — once commercialised, the businesses would like to grow the same to a level which would create enough revenue for diversification/ backward or forward integration/expansion/all of the above. This leads to a scenario of increased competition.
This leads to a scenario where the business would need to create a differentiating feature in the product or service offering or may be even the way of doing the existing business to manage the costs and ensure good margins. This is when it has to go back to phase (i) above.

Source : Sify