Switching yourself on to the warning signs

People in the creative industries are invariably outward looking, not introspective, are entrepreneurial not bureaucratic, and, almost always, optimistic. In today’s climate, however, introspection and realism are the order of the day. Reading the signs correctly will tell you whether your group is heading for more than a downturn squeeze.

The early warning signs of real trouble usually come in three key areas. The first is clients: budget cuts and deferred projects are distressing, but well understood. But worse trouble is afoot if the consultancy is not told of new developments; not kept informed on the client’s business; meetings start late, and the important people you prefer to see can’t make the appointment. If work is rejected without rational reasons bills are paid increasingly late; clients start bypassing the consultancy; social relationships drop away; the voicemail is always on and people are increasingly difficult to get hold of, the chances are that worse things are around the corner.

These are some of the symptoms of a deeper malaise. The coded message is that unless remedial action is taken, the relationship itself is coming to an end. Even the reduced client spend will disappear. Client relationship management should be regarded as a crucial skill and part of that skill is being sensitive to changes in client mood. So, be sure that this is an area that you monitor closely.

The second area to watch is finance. While the consumer may be king in the outside marketing world, inside the company, cash is king. Signs of financial difficulty are cash related and are always the same; debtor days stretch out; work in progress does not bill out fast enough; or even worse, the level of unbillable work in progress increases, and the overdraft rises.

Clients, unless checked, will start to bank with you. Invoices will suddenly need order numbers that they didn’t need before, meaning that invoices have to be reissued; cheque signatories, who may change, are seldom available; disputes often bordering on the spurious arise. In the worst case, post-dated cheques start arriving. All these are devices frequently used to delay payment, and which put you under serious cash pressure. You may end up with escalating VAT and PAYE arrears, or worse. Don’t let it happen to you – take action fast, seek professional advice if necessary, but at all costs, don’t lose control of the cash.

This also raises the issue of management accounting, client profitability measurement, and cash flow forecasting. There are too many design groups in which these are weak areas. In the good times, you may feel you can live with ‘so so’ financial systems. In a downturn, you definitely cannot. Without good financial information, you cannot make good decisions affecting the future of the consultancy.

If you are worried about the adequacy or timeliness of your financial information, speak to your financial advisor now, don’t wait until you start getting statutory demands for payment from your suppliers, or demands for a meeting from the bank manager. If these things are happening, you are already in trouble.

Finally, staff and morale become evermore sensitive areas in a downturn. Being forced to cut overheads can mean being forced to reduce your headcount. Even if you are fortunate enough to be able to hang on to all your staff, there is still the problem of morale. With the fear, real or imaginary, of job losses, the natural human reaction is to become inward-looking and protective. Information sharing slows down, turf protection increases; office doors, previously open, start to close; authority is more asserted, the buzz goes out of the consultancy, in fact, the culture itself begins to change.

If management, as part of cost reduction, is also stripping away some of the supportive cultural elements (the ‘touchy-feely’ things) such as duvet days, internal lunches or social activities, then morale will inevitably slide. Erosion of morale in a people-based business is a critical issue. You must watch it carefully. Is there a decreasing willingness to stay and have drinks after work? Is inter-departmental or inter-function tension increasing? Are complaints on the increase? Is time-keeping slipping, or are the inputs into meetings less? Do you sense a lack of that crucial internal driver: confidence? All these indicators are the straws in the wind that should tell you that you have a problem to address. Once morale goes, you risk losing your good people, you risk your client relationships and you risk your self-belief in finding new business.

Regrettably, we will undoubtedly see consultancies in the design sector, in common with other sectors, continue to face survival issues. A Micawberish stance of ‘something will turn up’ is not a practical or healthy way to run a consultancy in a downturn. Beady attention to the warning signs outlined here and fast appropriate remedial action are what is needed. At least this will give you a chance of nailing the symptoms of problems, which if left untreated may indeed lead to terminal illness. And dealing with insolvency practitioners is not a lot of fun.