• 
• 

The Thailand branch of global business services firm Grant Thornton has launched a business guide for local firms aimed at helping them cope with economic recession.

Its first advice is for businesses to take proactive steps to prepare for the challenging period ahead, and suggests that they should make fundamental changes to their strategies and approaches to assessing risks and opportunities.

With careful planning, foresight and a touch of innovation, businesses that are well capitalised, well positioned and well managed should be able to turn the crisis to their advantage, it says. On the other hand, sitting still and waiting for the recession to go away could be a recipe for disaster.

Quoting directly from Grant Thornton's "Recession: A Practical Guide for Businesses in Thailand", the firm's advice concerning various aspects of doing business is as follows:

Focus on core business

This is a good time to review the business portfolio and focus on core businesses that will generate higher return. More than ever, the old adage "focus on what you are good at and do it very well" is valuable advice. Produce the products that the customers want, not necessarily the products that the company likes to produce.

Strengthen liquidity

Cash is extremely important in a slowing economy, as it is the lifeblood of any business. Manage cash intensely and strengthen the companies' liquidity as much as possible. Stress-test your business plan and understand the resulting impact on liquidity. Based on your financial projections, forecast your cash flow, including near- to medium-term receipts and payments. Identify peaks in demand for cash, manage your receivable balances and improve your cash-conversion cycle.

Bargain with your suppliers for the most favourable credit terms and balance the benefits of early-payment discounts against your need for credit.

With regard to inventory, sell down aged inventory, reduce inventory levels, decrease investment in stock and use the "just-in-time" strategy to improve stock management.

Steadily control costs

During an economic downturn, most companies try to cut costs to ease margin compression and improve their liquidity. Intelligent cost control across the board is recommended. Understand the company's fixed and variable costs and do not overlook any outstanding liabilities that are not reflected on the balance sheet.

Institute policies that encourage and reward cost savings and cash conservation.

Do not automatically cut either marketing costs or employees as this might affect business operations and the company's competitive position when market conditions improve.

A cost database is important, enabling multi-dimensional analysis to improve cost-related decision making.

Focus on key customers

In times of slowing sales, competitors will be more aggressive in their efforts to win over your best customers. It is recommended that companies strengthen their relationships with all key customers. Understand their needs and try to improve the quality of your services, or help them to reduce costs. Customer relationship management and customer experience enhancement initiatives are recommended to maintain them loyalty.

Don't forget to keep a weather eye on the upstream of your value chain. Ensure that your suppliers are robust and in good shape.

Carefully consider your investment plan

Don't automatically stop investing. Consider investments in core-business assets that have the potential to generate higher income in the short term. Refocus away from longer-term innovation, but encourage innovation that may achieve shorter-term revenue increases or improve cash flow.

Do not cancel an investment if it is vital to keep the business operating properly. To further preserve cash, management teams may consider the use of asset financing or debt to acquire assets.

Get close to your bank

Proactively manage your relationship with your lenders. Treat them as partners. Keep them informed and help them to understand your business. If your company needs additional borrowing, have a plan in hand and give them prior notice. It is always better if your management informs the bank about any issues, rather than have the bank discover them for themselves.

Remain current on your company's debts and ensure that the company has the finance available to operate its business effectively.

Be strategic in workforce management

Focus on productivity and manage excess human resources. Look after top performers and loyal employees. If the company must retain a workforce in excess of needs, try to agree on reduced or flexible hours and reduced compensation. Consider using training programmes to build employees' skills to make them more efficient and productive, helping to pre-

pare the team for the eventual upturn.

Retention is vital in the downturn period. The chief executive has to demonstrate that the company believes that people are its greatest asset. Don't simply pay lip service to people issues. Take them seriously and attend to them right away. But avoid excessive micro-management of people. It is tempting to start micro-managing, to be seen to be "doing something" about the crisis. Instead, focus on the critical issues, give clear direction and let the management and people get on with their jobs.

Keep an eye out for bargains

Some businesses that have liquidity problems will consider selling assets as a viable option to bring in cash, because of a lack of confidence in recovery or simply to focus on their core business. These situations create buying opportunities at attractive prices. Best buys are often made in a down market.

Protect personal wealth

Business owners should think hard about financing options before agreeing to become more personally exposed for the sake of business. They should ask themselves: can the business survive a long-term recession? What will we do next time the business needs cash?

Debt is not the only source of cash. Consider other options. Equity financing may be a safer alternative. If you choose debt financing, try to avoid personal guarantees and pledges of personal assets to secure business debt.

Summary

Businesses must take measures to help them cope with the effects of easing demand. It is important that managers truly understand the business, its competitors, industry dynamics and cash flows. Understand the value drivers. Be prepared to take tough decisions.

Businesses adopting a strong, strategic approach into and out of the downturn will be the stars of the future.