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Surviving the Downturn

A guide to protecting yourself and your company in a hard economic climate, from retaining talent, business warning signals and managing costs to redundancy and directors' responsibilities.

Surviving the Downturn: Key Safeguards for Your Business

In this evening seminar, Kit Pogson and Geraint Howells from chartered accountants Willott Kingston Smith (www.kingstonsmith.co.uk) and Steven Lorber and Jo Evans from legal firm Lewis Silkin (www.lewissilkin.com) presented a guide to protecting yourself and your company in a hard economic climate. The event was aimed at all businesses planning to review their forward strategies in light of the current economic situation. The following is a short summary of some of the topics covered:

Motivating and Retaining Talent

Geraint Howells of Willott Kingston Smith began by looking at how to motivate and retain staff when your company falls on difficult times. He stressed the importance of recognising the key attributes that staff members value in their jobs:

1. Contribution
   • Informing
   • Individual feedback
   • Reward schemes
2. Development
   • Acquiring skills
   • Growing and learning
3. Fun

In addition, there are soft issues that can improve staff retention, without markedly increasing costs. Non-financial rewards may include:

• The office environment
• 'Duvet days'
• Beer tokens
• One off non-cash rewards.

Managing Your Business – Flashpoints and Warning Signals

Implementing a thorough and rigorous accounts system will enable you to predict when trouble may lie ahead during a downturn in the business cycle. After describing how to choose an accounting system, forecast cashflows and profitability more accurately, and allocate and monitor overall and departmental budgets, Gerraint flagged up some of the flashpoints and warning signs you should look out for:

• Exceeding cost budgets
  Is higher turnover being achieved? If not, you need to trim costs wherever possible.
• Costs in-line with budget, but turnover below budget
  If your ‘order book’ is still strong, this should be a short-term issue. If not, your cost base needs to be reduced accordingly.
• Overheads in-line with budget, but gross profit lower than forecast
  Is the selling price being squeezed? Is it still in the company’s economic interest to carry out certain jobs? Are costs being closely monitored and controlled by project?
• Is the company trading while technically insolvent?

Clients and Costing

Kit Pogson of Willott Kingston Smith suggested that clients generally fall into one of three categories: ideal, loss leaders and ‘rubbish’. He proposed some guidelines for managing the client relationship:

• Agree fees in advance of starting work
• Bill small and often
• Agree credit terms and payment schedules
• Check client solvency

Overruns & Changing Briefs

Warn of overruns as soon as possible:

• Quantify
• Agree additional costs
• Suggest alternative strategies
• Whose fault – yours, theirs or a third party?

Understanding Costs

Kit went on to explain why a proper understanding of your costs is the key to setting prices at the right level. The ‘cost’ is the figure obtained by analysing the expenditure of the organisation for a particular purpose. A surprisingly common misassumption is that costs are confined to the direct operation of producing a good or service – when in fact ‘cost’ should also be applied to the activities of selling, account and administrative departments.

Full Absorption Costing should take into acount outgoings such as annual property costs, fixed asset depreciation, utilities costs, secretarial support and required profit levels, as well as the marginal costs of staff time spent on a particular job. This will affect your charge-out rate per hour.

Redundancy

If your business isn’t doing as well as it has in the past, sooner or later you may find yourself faced with the unpleasant task of making employees redundant. But redundancy can involve costs you may not have bargained for, according to Steven Lorber, a partner at legal firm Lewis Silkin.

If you neglect to follow the correct procedures – whether wilfully or through ignorance – you could find yourself having to pay former employees satutory redundancy pay, notice pay, unfair dismissal awards, and other claims such as protective awards and discrimination fines. To reduce the risk, Steven suggested observing the following guidelines:

• Warn of possible redundancies
• Look for alternatives to redundancy
• Ask for volunteers… and offer more money
• Help staff find work by offering time off and facilities such as copying, phones etc.
• Make a binding agreement if offering a significant package.

Directors’ Responsibilities

The role of company director carries with it a range of duties and responsibilities to the company, shareholders, creditors and employees. As Jo Evans, partner at Lewis Silkin, explained, you could be held personally liable if you fail to meet your obligations when your company is facing insolvency.

If you find yourself in such a situation, Jo advised the following:

• Don’t resign
• Minimise loss to creditors
• Hold board meetings
• Understand your responsibilities