We know that business changes are acceptable – but only those for the better. As long as the business is going well, we don't think about the changes that may be dictated by an impending crisis, a decrease in demand for certain groups of products or services, inflation, and the other factors that cause these changes. We don't think about consulting a lawyer or conducting an audit because, after all: "here and now is fine," "I'll worry in six months," "it's bad luck," or "let's not tempt fate and do our own thing while we can." These are just some of the excuses we have already heard many times before and that have often led to the withdrawal of resilient entrepreneurs from the market. It is our job to work with entrepreneurs on a daily basis so over the past 20 years, we have heard these excuses quite often.
The truth is, however, that in a few months, you could be at a point where you will be thanking yourself for the decisions you make now. Crises and economic ups and downs are pretty much the natural order of things – that's why economists call them economic cycles. It's all happened before, and economic booms are generally followed by years of economic slowdowns.
So why are we talking louder now about the impact of a possible crisis, which has already been forecasted for the upcoming quarters of this year? Because economic problems tend to strongly impact those sectors of the economy that deal with manufacturing, services tend to do well – or relatively better. On the other hand, changes dictated by the current situation in the world (in particular in our part of Europe) and the remnants of the pandemic may also affect other sectors of the economy, including the service sector. This impact is likely to be felt by both service providers and service recipients.
Entrepreneur, how can you help yourself? Let's think about it together.
Analyze, design, and reorganize
We're talking, of course, about costs. Don't just analyze your fixed costs. Start taking a look at the ones you're projecting for 2023. This may be the year you've been planning to replace your fleet or equipment for employees; include this in your budgets. If you still need to create projected budgets, do it now. Then periodically review the budgets you created at the beginning of the year, and verify that you are sticking to the projections you made. January-February is the last time to address this in your company.
Consider whether any overpayments/repayments of loans you have is a good idea. Usually, overpayment of loans offers an opportunity to alleviate some financial burdens, but in the face of a crisis, it is generally good to have a financial "pillow" as a backup – so that you don't fall into needing more loans. Cost cuts usually sound enigmatic and a bit scary, but consider whether you need them. After all, it's not about freezing the operation of half the company just because you are too enthusiastic about cutting costs.
And one more thing – if you don't work with anyone on a permanent basis – hire a good accountant. We're talking about someone more than the person who files social security declarations on your behalf. This is a kind of investment, but certainly one of the most recommended ones. In our experience, the support of a tax consultant in a business's planning and day-to-day running is the key to success and avoiding problems.
Manage the team and communicate
Once the topic of cost-cutting comes up, it always sounds a little scary, both to the business owner and his employees. Questions about layoffs arise. However, if the correct assumptions are put in place, and the team conscientiously implements them – it can bring genuinely amazing results. What will be helpful? Certainly, an audit. In our opinion, Audits are a seriously underestimated tool in Polish companies. In companies with foreign capital, audits are periodically carried out on many company activities, from employees to costs. In this regard, the involvement of an external advisor or law firm guarantees an independent and objective analysis and the identification of potential problems and possible remedies.
It is important to understand that in moments of crisis, the organization will change. Reorganization often becomes an act of disorganization by management and employees that erodes efficiency. To avoid this chaos, speak to your employees in a way that does not lead to chaos. Although emotions can creep in, unplanned actions can eventually lead to behind-the-scenes reactions, such as employees looking for another job because, after all, "they're going to cut costs" and "I'm probably the first to be fired." But, of course, the last thing you need at such moments is to lose proven and reliable employees. So avoid scaremongering. Talk about problems as they are, but also about solutions. A review of your staff, an open conversation with your team, and an analysis with your lawyer will help avoid problems in this area.
Use resources efficiently
Linear economy versus circular economy – for those who haven't delved into these concepts before, we recommend familiarizing yourself with the circular economy. The so-called "circular economy" involves planning for the recovery of resources, even those which have previously been considered unnecessary. This can give rise to a new business model in your company. The Polish market has recently seen an increasing number of services and goods become available. For example, in the formula of subscription or long-term rental. This type of model of investing in the company's development allows your business to give up large one-time expenses in favor of regular small installments/payments from the services or products you need for as long as you need them.
The circular economy assumes that raw materials and products are not disposed of but remain in circulation for as long as possible. We then maximize the value of what was previously called waste. The way you use resources depends, of course, on the type of business you are running, but we know from experience that in both manufacturing and services, there are many areas to optimize in this regard, and it is possible to use them in such a way that it does not limit the business but instead increases the economic potential of the company.
Go through the old insurance policies, renew the ones that are ending, and consider buying new ones if this is your first time using them. It's not a solution to get rid of the problem completely. Running a business always involves risks, regardless of the economic cycle and whether we happen to be in a growth phase, but to some extent, this is a way to minimize those risks. One type of insurance you should consider is the so-called directors and officers liability insurance (D&O), which provides comprehensive protection for those who hold key positions in the company in the event of claims directed at them. The scope of such insurance coverage includes civil, administrative, and criminal liability and allows you to cover a broad package of additional costs arising from your liability.
We do not say "no," after all, sometimes it is necessary to say "yes" as much as possible, BUT – and there is always a "but"— always consult first with the right advisors. It is necessary to categorize the given investments (as well as expenditures of a non-investment nature) to determine whether they are profitable, needed at this stage, or only advisable. As an entrepreneur, think in the long term, count the rates of return and the amount of possible collateral at your disposal in case of any setbacks. In addition, think about how you will finance these investments, you may want to consider rental options, and sometimes a purchase or a loan will be more profitable.
Should you "stock up"?
Prices of goods and services are rising – some entrepreneurs are already thinking about stocking up their warehouses to catch their breath for the future. Others, on the other hand, do not want to "freeze" funds. So which option is more advantageous? We probably won't surprise you when we answer – it depends.
Do a reconnaissance of the market in which you operate to make the best decision for your business. Find out which prices will go up, which won't, and which, given the right circumstances, can come down. There is no golden mean. This solution has to be tailored to your business. For some businesses, subsidizing yourself and keeping to current prices is a good solution. In other cases where liquidity may be shaky, it may not be worth spending more than you need at any given time – a smaller working capital reserve may not be worth freezing funds.
It is undoubtedly necessary to forecast receipts and expenditures, as well as to forecast standstills – payment congestion. Along with how much our contractors owe us. In this regard, it is also worth reaching for the support of experienced financial and business advisors, who can objectively assess your company's state of affairs.
Don't stand still - get further training
Despite the notorious consequences of "cost-cutting," retrain your executives, managers, and managers – many practical decisions at the executive level largely depend on them. They are the ones who run your business on a daily basis. The better prepared they are, the better prepared your company will be. If you are running a smaller company – train yourself as a leader or educate the people who can support you in the face of possible organizational problems. A good practice we always recommend to our clients and partners is regular training for management and the entire team. From a strategic perspective, it is imperative to have up-to-date knowledge and competence in legal, formal, tax, financial, and security issues – these elements are critical to the continuity and sustainability of your business.
To sum up – while running your business on a daily basis, you may lack time to take a bird's eye view of your business. However, taking time to see the so-called "big picture" allows you to better assess risks, threats, and possible problems in your business. That's why we warmly encourage you to reach out for the knowledge and support of advisors and lawyers who will make running your business easier – you will be able to devote the time and energy you save to growing and scaling your business.
Karolina Klimek-Kaźmierczyk – expert in the Family Enterprise Initiative (IFR), attorney-at-law in the law firm Brillaw by Mikulski & Partners, deals with compliance, competition law, public procurement, contract law, as well as day-to-day legal consulting for business.