With 2013 set to be another challenging year for businesses, owners and management need to focus closely on the issues that will be facing them and ways to reduce risk. Bobby Lane gives his tips on how this can be achieved.
Interest Rate Risk
Despite the current forecasts for Interest Rates to remain on hold until after 2014, there is no getting away that there will be a rise in the future. Many businesses have got used to paying lower rates on their business mortgages and other forms of finance. When rates do increase this will cause costs to rise so you must keep an eye out and decide when is a good time to fix rates at an affordable level.
Given the continued issues in the global economy, foreign currency rates remain difficult to predict. When taking or placing orders at one rate a significant move in the currency could seriously affect the profitability of these transactions. You should be aware of some of the ways on offer to fix the exchange rate such as forward contracts which will enable a business to reduce the associated risks of currency fluctuations.
As insolvencies rise so do the risks associated with your customers. Although it can be expensive, taking credit insurance on customers can help to reduce this risk. On the one hand it gives the first indicator of whether you should be doing business with that customer. Plus if that company were to get into trouble you are insured.
Make sure that your business is flexible. This can be achieved partly by making sure that the costs of opening the doors are as low as possible. Secondly by turning some of these fixed costs into variable ones for example using freelance designers instead of full time staff, outsourcing administrative functions that can be scaled up and down with the trends in the business or using pop ups or short term space as opposed to signing up to long term leases. This will be enable the business to react quicker and more effectively to future crises.
Borrowing from the banks continues to prove difficult, so you should look at how to reduce your reliance on debt and ensure that there is available cash in the business. This can be through a combination of either taking less out or looking at new, less traditional forms of financing your working capital such as factoring or invoice discounting.
Bobby Lane is a partner at Accountants and Business Advisors firm Shelley Stock Hutter LLP. He advises many fashion and creative businesses on all aspects of their business