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5 Areas to stay lean and flexible in a challenging economy

By FastLane Team, October 4, 2019 (5 mins)

Introduction

2019 has seen the global economy become an increasingly difficult landscape to navigate. The US – China trade war has created noticeable economic impact, the lack of liquidity in global markets exhibits a lack of willingness to spend in a time where holding dry powder is becoming an increasingly attractive prospect.

 To the extent that the current economic landscape continues to develop for the worse, start-ups and SME’s will be increasingly susceptible to negative economic developments. As such, start-ups / SME’s must be able to ensure their businesses remain lean and flexible to hedge against such changes. Below are five areas in which start-ups / SME’s can remain lean and flexible.

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Cashflow Management

Managing ample liquidity for running a smooth business operations is not only critical to start-ups and SME’s, but also established corporations. Cash flow issues are often the primary cause of business failures and closures, not poor business profitability. Profitability does not equate to a lack of cashflow issues.

For start-ups / SME’s to succeed in an increasingly difficult economic landscape, it is imperative for firms to have the flexibility to appropriately handle cashflow issues as they arise, and are lean enough to avoid unnecessary costs.

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We recommended to keep your accounting organized. If you’re not confident with your ability to manage your company’s finances, hiring a professional accountant can ensure your finances are in check. A professional accountant will assist in forecasting a company’s cash flow, allowing entrepreneurs to identify, track and report on key business metrics. Such metrics include accounts receivables, operating margins and inventory turnover. Greater knowledge and awareness of such metrics will allow entrepreneurs greater flexibility in planning their business operations accordingly.

 

Professional accountants also help entrepreneurs keep their businesses lean. Many professional accountants can advise on proper expense management and regular analysis of your P&L statement will allow you to identify unnecessary costs. Typical questions to ask when analyzing a P&L statement include, are there any areas where cuts can be made? Can you negotiate with your vendors for better pricing? Can you make a fixed expense a variable expense?

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Adopting cloud accounting solutions such as Xero (www.xero.com) also provide entrepreneurs with greater flexibility in handling their businesses operations. As a business develops, new needs or various socio-economic factors will emerge. Cloud accounting provides scalability and extensibility solutions through their ability to respond to a businesses’ ad-hoc needs. Typical scalability issues such as the ability to add more users and adjust transaction volumes, or extensibility issues such as the ability to adopt additional features can be easily addressed through a cloud accounting platform.

Human Resources Management 

Often times, in instances of economic difficulty, companies will often cut staff costs to solidify their financial position. However, cost cuts are often made without being considered for its strategic viability. If not done properly, staff cuts will lead to a firm being dangerously understaffed. In the event that staff cuts must be made, it can be done so without harming a businesses’ ability to operate by outsourcing work.

Professional service providers can assist start-ups and SME’s with outsourcing work. Much of the internal assistance that can be provided are HR related services such as payroll processing, MPF assistance, staff redundancy management and preparing employment contracts. Engaging professional service providers allow entrepreneurs to stay lean by diverting staff costs to other areas of potential focus. For example, greater funds may then be invested towards research and development or the provision of deliverables.

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Human Resources Management 

Often times, in instances of economic difficulty, companies will often cut staff costs to solidify their financial position. However, cost cuts are often made without being considered for its strategic viability. If not done properly, staff cuts will lead to a firm being dangerously understaffed. In the event that staff cuts must be made, it can be done so without harming a businesses’ ability to operate by outsourcing work.

Professional service providers can assist start-ups and SME’s with outsourcing work. Much of the internal assistance that can be provided are HR related services such as payroll processing, MPF assistance, staff redundancy management and preparing employment contracts. Engaging professional service providers allow entrepreneurs to stay lean by diverting staff costs to other areas of potential focus. For example, greater funds may then be invested towards research and development or the provision of deliverables.

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Flexible Office Arrangement

 It is globally recognized that the Hong Kong property market remains among the most expensive in the world. The lack of new supply of office spaces and developing demand from financial institutions and mainland companies are among the dominant factors for the rising price in office rentals in Hong Kong. According to Alan Lok, Executive Director at CBRE, “offices in Central and Kowloon grew 5.1% and 10.1%, respectively, from the year before, ahead of the Asia-Pacific average growth rate of 3.3%.”

 

Given that many multinational corporations are struggling to adapt to developments in the property sector, it is imperative that start-ups / SME’s understand how to best manage their office leases to stay lean and flexible. Entrepreneurs can minimize unnecessary office rental costs by ensuring that they do not acquire spaces which may not be fully utilized, or by renting smaller offices. However, given the limited supply of affordable office spaces in Hong Kong, co-working spaces provide a fantastic alternative solution to companies looking to remain lean and flexible.

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Co-working spaces are venues in which employees from different companies share an office space, granting cost savings and convenience through the use of common infrastructure. These spaces allow companies the ability to stay lean and flexible by granting the opportunity to avoid entering into costly office leases, which is especially important given the high average rent found in Hong Kong as compared to the rest of Asia.

 

Co-working spaces often allow flexible arrangements to their members. By choosing to commit to a short-term lease, start-ups and SME’s will gain the opportunity to capitalize on future business opportunities as they arise by not committing to a long-term lease whose terms may not be deemed to be appropriate as one makes their way through their contract.

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In the event that a company has minimal staff, co-working spaces often offer adjustable rates dependent on the number of staff who plan to utilize the services of the co-working space. Flexible rates allow start-ups and SME’s to remain financially lean, given that co-working spaces provide amenities to their members. Members of such spaces will be able to utilize fully furnished offices which includes amenities such as furniture, equipment, internet and phone lines etc. The provision of such amenities eliminates the short-term obligation of a start-up or SME to incur such expenses.

Administration and Miscellaneous Office Expenses

 No matter the size of a business, administrative costs cannot be avoided. Administrative costs are related to an organization as a whole and are not directly identifiable with financing, marketing or production operations. Although these costs are unavoidable, a company can still identify such costs and enact measures to minimize them.

Audits are a useful tool to utilize in identifying excessive spending, and to ultimately reduce costs on office administration.

As previously mentioned, coworking spaces offer start-up’s and SME’s a solution to limit their administrative costs. As most co-working spaces offer members a list of amenities, excessive spending on costs such as office utilities, cleaning fees, pantry supplies can be offloaded to the co-working space. In addition, spending on relevant manpower such as office administrators, receptionists and cleaners may also be offloaded.

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Administration and Miscellaneous Office Expenses

 No matter the size of a business, administrative costs cannot be avoided. Administrative costs are related to an organization as a whole and are not directly identifiable with financing, marketing or production operations. Although these costs are unavoidable, a company can still identify such costs and enact measures to minimize them.

Audits are a useful tool to utilize in identifying excessive spending, and to ultimately reduce costs on office administration.

As previously mentioned, coworking spaces offer start-up’s and SME’s a solution to limit their administrative costs. As most co-working spaces offer members a list of amenities, excessive spending on costs such as office utilities, cleaning fees, pantry supplies can be offloaded to the co-working space. In addition, spending on relevant manpower such as office administrators, receptionists and cleaners may also be offloaded.

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Business Development and Networking Opportunity

Entrepreneurs must maintain a flexible mindset at all times. To best prepare for future economic uncertainty, these individuals must be able to adapt to changing landscapes to establish and leverage strategic business partnerships. As such, it helps to be as aggressive as possible when exploring potential business opportunities. Often times, such opportunities arise through the networking events and meet-ups hosted at co-working spaces. These events bring about not only start-ups and SME’s from a variety of industries, but also corporations who are interested in providing assistance to entrepreneurs.

 

Although any individual may participate in these events, becoming a member of a co-working space is the most efficient method to gain exposure to the developments of your local business community. Start-ups and SME’s of a variety of industries utilize co-working spaces, making them vibrant entrepreneurial communities.

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Conclusion

In order for start-ups / SME’s to best prepare themselves for unfavourable economic developments, entrepreneurs must focus on cutting costs and preserving capital. Luckily, these measures can be taken with the right professional help!

 

Ooosh Coworking and FastLane are two such firms which have been working closely with the start-ups and SME ecosystem. Through our assistance to entrepreneurs in developing their businesses, we have developed a unique understanding and appreciation for the challenges that such individuals often face.

 

Please contact the FastLane Group and Ooosh Coworking if you are seeking assistance to achieve these measures.



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