MASTERCLASS:Cashflow is going to remain tight next year so companies need to continue to focus on cutting costs, writes OLIVE KEOGH

OPTIMISTIC ECONOMIC commentators may be talking about signs of tiny green shoots but the recession is far from over. Next year is going to be another tough year for SMEs and companies need to remain alert to the threats that could still sink their business. Most organisations have already tightened their belts and taken the obvious steps to cut overheads, contain costs and sharpen their pricing on products and services. So what more can they do to ensure their business survives into 2010 and beyond?

"Companies need to continue to be obsessive about cutting costs," says Patricia Callanan, director of the Small Firms Association (SFA). "Renegotiate with all suppliers, ask landlords to conduct rent reviews, keep your staff fully informed as to the business marketplace so that if you need to negotiate pay decreases, short-time working weeks, etc, they will be more understanding. Overall, owner-managers need to have vision, optimism and perseverance.

"Cashflow is going to remain very tight next year," she adds. "So put in place proper cashflow management procedures to ensure that your debtors don't use you to finance their business. Keep in close contact with your financial institution. The earlier and the more they know, the greater assistance they will be to you."

Liam McMahon, managing director of IT training company New Horizons, has been forced to downsize and shake up their business model. The training sector has been hit hard by the downturn and New Horizons was one of many that had to reassess their situation. "The market environment leading into 2009 told us that things were going to be tough. We knew revenues would be down and debtor days increased so cash flow would be a significant factor. In order to address these challenges we took several significant steps," McMahon says.

"We restructured our delivery process, reduced staff numbers, initiated a tiered pay reduction across the board and renegotiated all our rent agreements. We looked at every single opportunity for cost saving and negotiated with our suppliers. We also focused on opportunities and protecting revenues. This led us to launch a new website, revise our pricing and offer new products to the marketplace. We are now in a much stronger position for the future."

Patrick Burke, partner in privately held business, Grant Thornton, says that for most SMEs 2009 "was about adjusting the cost base of the business to suit the new level of turnover brought about by the downturn - essentially getting the business to live within its means. But 2010 is the start of new decade and it is crucial that businesses take time to think about the next three years and where they want to get to and how they will get there."

Burke highlights business planning as critical to this. "The best business plans are a couple of pages with the key actions outlined for the next six to 12 months and greater than 12 months. Identify the critical success factors and eliminate the barriers to success. Working capital and access to finance will probably be an issue and it is important the problems are identified now. Talk to your bank and get them excited about your business. If you are not excited they won't be."

Burke also points out that getting a business to survive is different to getting a business to succeed and that cutting too close to the bone may be counter productive.

"There is anecdotal evidence coming through that some of the cost cutting has been overdone and certain roles or types of expenditure (such as promo- tion/marketing) just can't be done without."

Claire Lanigan opened Molly's, an upmarket pet boutique in Dún Laoghaire three years ago. Trade is down because of the recession but Lanigan says making early changes to the shop's product mix has kept the business viable. "People are still spending on their pets but we recognised that money was going to be tight and responded to this. We dropped certain luxury lines and suppliers and the big challenge has been finding better-priced alternative products without compromising on quality," she says.

Molly's used to open seven days but has now cut back to six. Plans to open a second outlet have been put on hold. "We reluctantly stopped opening on a Sunday but the impact has been much less than we had anticipated. The trade now seems to spread over six days rather than seven," Lanigan says. "We started Molly's during the boom and because things were going well there was a big temptation to open a second outlet. I'm very glad we didn't. Our focus now is on maintaining quality and service levels and continuing to watch the market for new products and ideas that will keep us unique."

CASE STUDY: Ina's Kitchen

LIKE EVERYONE else, Ina's Kitchen Desserts has had to respond to deteriorating market conditions by cutting costs, reducing prices and paring back margins. But rather than battening down the hatches and riding out the recession, the company has decided to go for growth. To do this it has spent around €100,000 on R&D, new machinery and rebranding in the last 12 months.

Ina's makes cakes and desserts for the restaurant and catering trades. It also makes a range of products for cafes and coffee shops and "grab and go" snacks such as flapjacks and caramel slices which it sells under the Broderick's name. Broderick's is also the company's export brand and its snacks are already on sale in France, Denmark, Greece, Hungary and the Netherlands.

Ina's was started by Ina Broderick at her kitchen table in 1983 and it now employs 27 people, including the founder's two sons, Barry and Bernard. The company has around 50 core lines and also makes specialist products for the food service industry, such as ice cream.

"A significant amount of the money we spent in the last year has been directed towards a relaunch of Broderick's early in 2010," says Barry Broderick.

"We will have a new website backed with a digital push on the social sites and our focus will be on building our export markets."

Barry Broderick joined the family firm in 1994 and says the biggest change he has seen in that time has been the growth in the snack market. "Grab and go has become a big part of our business and this is where we see the potential for even more growth," he says. "Our aim is to provide this market with the ultimate indulg- ent snack product which is why we only use quality ingredients such as Belgian chocolate in our Broderick's range."

Broderick's already has a good foothold in France where it supplies Monoprix and Galeries Lafayette. It has recently won a contract to make an own brand product for French chain, Carrefour. It makes own brand products for Asda in the UK and will begin supplying dessert products to the large UK food distribution company, Brake Brothers, in 2010.

"We broke into export markets such as France mainly through doing trade shows," says Barry Broderick.

"Both Enterprise Ireland and Bord Bia were very helpful in providing us with contacts and other assistance to help us meet potential customers. To be taken seriously at international level you need a good product, to be very professional about what you do and to have quality standards for food production."

Top tips for surviving in 2010

Re-evaluate your business model: only by adopting an innovative approach to operations and constantly challenging existing business models, will businesses be able to adapt successfully to the new business environment.

Optimise the flexibility of your operations: improve responsiveness and flexibility to drive down cost, improve efficiency and adapt quickly to market changes.

Optimise capital availability and deployment: the renegotiation of debt and generating and preserving cash through working capital management and tax planning remains critical.

Optimise your market reach:this may include the strategic acquisition of weaker competitors in order to seize long-term market share in new territories.

Accelerate decision making and execution: if you're going to do it, do it fast.

Strengthen your management talent:

ensuring you attract, retain and deploy the right management team is key. We have seen high-profile organisations across the globe revitalising senior management teams with greater focus on succession planning.