Published on 12 December 2011 by Tony Groom
While businesses might be concerned about a eurozone Armageddon, whatever the outcome they will need to ensure survival for the period of austerity that is likely to characterise the next decade.
Although growth is desirable, and has been the purpose for many businesses, a more realistic objective in times of uncertainty is to stay in business for the next five years.
Arguably the best way to achieve perpetual business survival is to avoid running out of cash. This involves examining all cash commitments and where possible turning fixed costs into variable ones so as to reduce the breakeven level of sales necessary to cover overheads and fixed obligations. All too often hitting sales targets can only be achieved at the expense of margins. The flexible business model means that you no longer need to take on unprofitable work.
Long-term fixed obligations can be anything from fixed-term rents, hire-purchase or lease agreements, repaying loans, servicing interest, supply contracts and staff employment. The common examples where companies have taken on such commitments tend to relate to: offices, plant and machinery, IT equipment and software, vehicles, signage, furniture, printers and photocopiers, mobile phones and telephone systems.
Most companies also fail to cancel or at least review contracts that automatically renew, such as: IT equipment and plant leases, life insurance, medical policies, employee benefits, subscriptions and membership, servicing and maintenance, office and window cleaning, sanitary towel and waste removal, portable appliance testing