When Things Go Wrong

Provided by the International Finance Corporation

KEY STAFF RESIGNS ABRUPTLY

Problems that can be caused

• Loss of technical skills
• Loss of capacity
• Loss of leadership
• Feeling of betrayal

Working through it

• Stop feeling sorry for yourself
• Find out why they want to leave and try to convince the person to stay, if that fails….
• Be prepared to take on a more hands-on role to fill the gap
• Make sure the staff member leaves behind all company property (including intellectual property) and is off payroll
• Share the workload amongst remaining staff as fairly as possible
• Contact anyone you know who might have the skills you need
• Consider paying a higher price for a temporary staff member
• Contact staff from a competitor, maybe someone there wants to leave

What to do beforehand to limit the impact

• Train all staff in multiple jobs
• Ensure key staff have a longer than average notice period (e.g. 3 months)
• Consider putting in a non-compete clause in employment contracts to stop staff joining a competitor
• Keep track of people in the industry or technical sector who might one day work for you
• Join online networks of people in the industry or sector, use it to find staff quickly
• Take great care not to put too much responsibility on one person
• In some countries, it is possible to take out key staff insurance policies
• Keep your staff aware of your plans, that is often enough to generate loyalty.

Opportunities

• Time for a reshuffle of roles and responsibilities?
• Chance to reward another staff member with an overdue promotion
• A new staff member could bring new energy and ideas
• This is a chance to really test the market for a particular skill-set, use it.

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SUDDEN ARRIVAL OF A NEW COMPETITOR

Problems that can be caused

• Loss of sales
• Product confusion amongst customers
• Potential loss of staff
• Reduced availability of raw materials

Working through it

Act to keep your customers by offering

• Discounts
• Match competitors’ prices
• credit terms
• Loyalty rewards

Act to keep your suppliers by offering

• Advanced orders
• Faster payment
• Larger orders

Act to keep your staff by offering

• Salary increases
• Training

For long-term staff, shares in the business

What to do beforehand to limit the impact

• Build up brand loyalty by providing benefits to long-standing customers
• Monitor competitors’ prices regularly
• Adjust prices to match competitors as much as possible
• Secure long-term supply arrangements with key suppliers
• Ensure that your salaries match or are better than competitors

Opportunities

• Could there be a strategic alliance with the new competitor?
• Will the competitor consider buying your business?
• Is it time to move to a new market
• Can you diversify your products or services?
• Is it time to invest in new machinery or modern production or delivery methods?
• Is it time to use more IT in your business to cut costs and expand the market?

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LATE PAYMENT BY LARGE CUSTOMERS

Problems that can be caused

• Cash flow problems
• Potential loss of a large customer
• Potential legal costs to recover the money
• Could be an indication of tough times ahead for many customers

Working through it

• Stay in contact with the customer
• Find short-term financing to cover the cash deficit
• Consider charging a late payment fee
• Seek legal advice in case court action is necessary later
• Offer a payment plan
• If it looks like the customer is going out of business, suggest a large discount for immediate payment – better than getting less than that, or nothing at all, many months from now after liquidation

What to do beforehand to limit the impact

• Try to limit the percentage of total sales to any single customer
• Include in conditions of sale, a clause that states the goods belong to the seller until paid for in full
• Consider using a factoring service
• If payments are delayed consider carefully if additional sales should be made to the same customer
• It might be possible to obtain bad debt insurance

Opportunities

• Time to diversify the customer base?
• Is the customer a potential investment target? Now might be a good time to convert a debt into an asset.

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PROBLEMS WITH BANKS

Problems that can be caused

• Refusal of loan/overdraft applications
• Poor credit rating shared with other lenders
• Early repayment of existing loans/overdrafts

Working through it

• If problem is personal, recognise that this is not a relationship of equals. The bank has money, you need it. They hold the power
• Open discussions with an alternative bank about transferring accounts, loans and overdrafts

What to do beforehand to limit the impact

• Maintain relations with more than one bank
• If negotiating a loan ensure there are no early repayment fees- this could stop you moving the loan to another bank
• Maintain good personal relationship with the bank manager assigned to your account

Opportunities

• Explore online banking options
• Consider alternative financing models
  • Peer to peer
  • Crowd funding
  • Microfinance
  • Asset based financing
  • Warehouse receipt financing

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BAD DEBT

Problems that can be caused

• Cash flow problems
• Loss of big customer
• Could signal deeper market problems

Working through it

• Keep records of all communications and efforts made to recover the money – this could be useful when negotiating credit from your bank or other lender to cover the cash shortfall
• If the customer is still in business, consider legal action

What to do beforehand to limit the impact

• For all new large customers, conduct a customer evaluation – sometimes referred to as ‘know your customer’
• For overseas customers, your government might offer some export protection or support
• Consider asking large, new customers to pay a proportion of the price in advance

Opportunities

• Chance to reflect on sales practices – could this have been avoided?

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CURRENCY DEVALUATIONS

Problems that can be caused

• Cash flow problems
• Higher prices for imported materials
• Higher income from international sales (if any)
• All prices will tend to rise in time including wages but it might not be possible to raise local currency selling prices
• Bank might wish to renegotiate loans or overdrafts to increase the interest rate

Working through it

• If possible set sales prices in a foreign currency
• Find local suppliers for any materials currently imported
• If foreign currency is needed to purchase imported materials, wait as long as possible – the exchange rate is likely to settle down after a few weeks once panic buying of foreign currency subsides
• If the business exports and receives payment in foreign currency, use the windfall profits as a strategic reserve for future expansion

What to do beforehand to limit the impact

If your business buys imported materials

• Consider holding some cash in the foreign currency
• Keep looking out for local suppliers of those materials

If you export and get paid in foreign currency

• Consider opening an additional outlet or production site overseas to counter the impact of devaluation on the business

Opportunities

• Overseas expansion
• Get into exporting
• Find more diversified suppliers at home and overseas
• If bank tries to raise interest rates, shop around for an alternative – not all banks will be affected equally by currency devaluations

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MACHINERY BREAKDOWN

Problems that can be caused

• Loss of production
• Staff sitting idle
• Loss of sales

Working through it

• Search for alternative production capacity
• Consider purchasing a new machine which might be cheaper than waiting for a repair
• Move idle staff on to other tasks

What to do beforehand to limit the impact

• Sign a maintenance contract
• If available, buy machinery breakdown insurance
• Make arrangement with a competitor to allow use of each-other’s machines in the event of break downs
• If the critical machine is old, consider holding a high stock of the output of that machine so that sales are not affected
• If it is affordable, keep a second identical machine as standby
• Make sure staff are trained in other functions so they can be put to use when ‘their machine’ is idle

Opportunities

• Maybe time to invest in a new machine
• Perhaps get the machine completely overhauled or upgraded rather than just repaired

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MARKET CHANGES

Problems that can be caused

• New regulations add costs
• Exchange controls affect movement of funds
• New technology threatens to destabilise current business norms

Working through it

• Remember, all your competitors will be affected in the same way – don’t panic
• Understand the changes quickly and fully
• Embrace the new technology (even if you can’t yet make use of it)
• Stay in touch with customers and reassure them that things will be fine

What to do beforehand to limit the impact

• Join a trade association or chamber of commerce – they are often consulted about proposed changes to regulations and will keep you informed
• Make political connections to learn about proposed changes introduced by government
• Become an activist in favour of/against the action that could be taken

Opportunities

In business, as in life, the quickest to adapt to new situations are usually the ones who survive

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POLITICAL UNCERTANTY

Problems that can be caused

While everyone waits to see what will happen

• Customers may be reluctant to buy
• Banks may be reluctant to lend
• Most government procurement goes on hold

Working through it

• Remember that everyone is in the same boat
• Consider selling outside the country
• Ask lenders to allow a repayment holiday
• Encourage customers with discounts and deals
• If it continues for more than a short time, consider shutting to save on running costs if sales figures don’t justify staying open
• Stay in touch with customers and reassure them that things will work out

What to do beforehand t limit the impact

• Try to sign flexible contracts with staff (e.g. bonuses in busy times and temporary lay-offs in lean times)
• Consider setting up a satellite outlet or production site in a neighbouring country that can be rapidly expanded if the main site is significantly affected
• Set up an uncertainty fund to be used in times like these

Opportunities

• Great time to train otherwise idle staff
• Great time to overhaul otherwise idle equipment

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