An introduction to ensuring your business can navigate a dip in trading

Dips in trading performance are part and parcel of business life, so it’s vital you know what actions to take.

In an ideal world, every business would enjoy continuous, uninterrupted growth. But in reality, most companies go through periods when trading performance dips. At such times, sales drop off, customers may desert you and the company’s financial state can weaken, leaving it in a perilous state.

When business owners and leaders suddenly find they have to deal with a situation they may never have experienced before, what actions should they take?

How you respond to a dip in trading can make all the difference between a temporary blip and something that develops into a crisis.

This guide shares some of the factors you need to consider when experiencing issues, common mistakes that distressed businesses make and some quick wins that can help you cope with the situation.

What factors influence how a business successfully navigates a dip in trading?

Responding to issues in the economy

A company that experiences a dip in trading because of an economic downturn may have to take a position on when the wider economy, and therefore its prospects, will improve.

Government statistics provide an indication of the degree to which a dip in trading is due to a wider trend and its forecasts show when the situation is likely to change.

Your peers’ performance

Starting to struggle when your competitors continue to prosper could be a sign that things are seriously wrong and that decisive measures are needed, which might include updating your product set or positioning.

Experience of senior management

The ability to navigate a dip in trading depends on having the right management and leadership in place.

External advice from an accountant or adviser can be brought in to strengthen your response. It may even be necessary to hire key personnel, such as an experienced finance director, that can help turn things around.

Access to financial support

It may be necessary to seek external funding to get through a dip in trading. This might include a loan, overdraft or invoice financing. The key is to consider your options as early as possible because seeking funding will become more difficult as your situation worsens.

Becky Lodge, Little Kanga

Becky Lodge highlights socio-economic factors that are influencing current trading conditions

“At this time, the most important factors influencing a company’s ability to navigate a dip in trading are socio-economic and directly related to the pandemic – the main factors being how long it has lasted already and how long it will continue to impact different sectors in the UK.”

Becky Lodge, founder of Little Kanga

The cold hard facts

A report by the TUC highlights companies in the hospitality, tourism, transport and the arts sectors as those most likely to be facing difficult trading conditions as a result of the coronavirus, with many only managing to survive because of government support. However, the sectors hit hard by the virus are less likely to be negatively affected by Brexit and vice versa.

Common mistakes in how businesses navigate a dip in trading

Companies react in a knee-jerk fashion

Businesses may respond to a dip in trading performance in a knee-jerk fashion. However, taking extreme actions, such as shedding too many staff, could end up making things worse. It’s better to do the financial forecasting, seek advice and invest the time needed to develop a better-informed plan.

Failing to keep you staff informed

Businesses may keep what is seen as bad news from staff. You may be afraid that if they get wind of it and believe the company is in trouble they may leave. While it’s important to balance transparency with protecting your team, keeping them completely in the dark will erode trust and prevent them from helping the business react.

When revenue falls, sometimes a number of small tweaks are all it takes to turn things around. Find out how Papersmiths' founder Sidonie Warren reacted when lockdown closed her stores.

Read Sidonie's story

Businesses find change difficult

Responding to a dip in trading is more difficult when businesses find it hard to change. When employees or managers adopt a stance of “this is the way we have always done things” it's tougher to adapt.

For example, faced with a downturn in business, minutely examining your cost base so as to eliminate waste is essential. However, if those costs are deeply ingrained in the business, such as job roles and processes that have existed for many years, cutting costs may not prove easy.

That doesn’t mean you shouldn’t try when the long-term success of your business is on the line. It helps to explain the implications to employees or managers that are disgruntled.

Peter Bibby

For Peter Bibby, it's important to be ruthless about what adds value in your business

“Every cost must add a value. You can go in and ask ‘what value does that add?’ and often it’s nothing but they’re doing it because they’ve been doing it for the last 25 years.”

Peter Bibby, managing director of Bibby Ventures

The cold hard facts

A study of US businesses that went bust found that 29 per cent failed because cash ran out. This was second only behind “no market need”, which was a reason given by 42 per cent of respondents.

Quick wins for ensuring you can navigate a dip in trading

Focus on things you can control

Rather than thinking about things over which you have no influence, such as the coronavirus pandemic, focus on those things you can control.

For example, is there some way you can improve your business processes to make them more efficient? Can you pivot your offering by, for example, targeting a new customer base? Do you need to look at the prices you charge?

Accept you don’t know all the answers

Running a business often means operating with incomplete information. You may also not have navigated a dip in trading in the past. Seeking support from advisors and business professionals, and utilising the resources of trade bodies and other business groups can be vital when the pressure is on.

Do some scenario planning

To help you respond more effectively to dips in company performance, do some scenario planning to stress test your business for what might happen next. For example, you can look at what you would do if revenue was to fall by another 20 or 50 per cent.

Identify and document the key risks you face as a business and how they might affect it and put a plan in place to mitigate the impact.

Look after your cash

Many companies fail because they run out of cash, so looking after your finances and focusing on cash flow is vital to successfully navigating a dip in trading.

Take your staff with you

When a company starts to do badly, staff can be affected in a number of ways. Morale and staff motivation can fall. Some employees may decide to leave the company. Keeping them up to date on the company’s performance and explaining what actions you intend to take will reassure people.

Engendering a “we are all in this together” spirit will also improve the chances that any dip in trading will turn out to be a short-term blip.

David Weaver - Vintage Cash Cow

David Weaver recommends sharing problems with your team

“The more you share with your team, the more they can help you get out of sticky situations. We learned from earlier near-death challenges that we can’t benefit from our staff’s experiences if we’re trying to fix something without them. We now have a habit of approaching things honestly, talking about problems, being real with everyone. This allowed us to navigate the storm as a different, stronger group.”

David Weaver, co-founder of Vintage Cash Cow

The cold hard facts