Following a period of unprecedented economic growth, there are increasing signs that the Chinese economy is slowing. Demand for exports is being threatened, in particular, by instability in the European economies and the global financial crisis. There are also significant concerns surrounding the future of the manufacturing, property and construction industries.

In manufacturing, concerns are centered on decreases in demand and the recoverability of debts, both of which are leaving companies with difficult issues to consider, in particular, whether they need to diversify their customer base or reshape their existing businesses in order to re-establish profitability and to meet liabilities.

Businesses need to remain alert to changes in the economy and be able to adapt to these changes quickly and effectively.

Businesses are encouraged to seek professional advice and opinion on their business strategy, business plan and financial forecasts, in order to assess whether the business is "right-sized" to deal with reductions in demand, without unnecessary risk. This should be done at an early stage when there are a large number of options available. Otherwise, an extended period of unprofitable trading will lead to cash flow problems and once these become critical, the recovery options available become significantly reduced.

There is a particular necessity to reassess the fixed and variable costs of every business. As has been experienced, in an expanding market, fixed costs help increase growth through the benefits of economies of scale. However, in a contracting market, these costs need to be reassessed. In this scenario, it may be beneficial to renegotiate contracts, which can take some time and may be complex.

Further slowing down of the market and downturns in the economy may also impact the availability of funds and the appetite of lenders. Therefore, it's important to consider these issues at an early stage, in order to ensure that there are funds available to be used as a safety net, as this will increase the ability to reshape the business.

By looking at your business early and commencing any restructure process whilst you have options, you will increase your chances of riding out any further downturn.

With more and more companies facing uncertainty nowadays with many tipping into distress, businesses should start focusing on sustainability planning before the testing times. This includes reviewing your business plan and strategy to assess whether it is in line with changing market trends and demand; considering securing additional funding to be used to realign your business; and carrying out an assessment of your fixed versus variable costs.

To safeguard your business and your livelihood, seek professional advice early and take actions while you have options on hand and before the market slows further.

The author is managing director at Grant Thornton, a financial advisory services provider. The views expressed here are entirely his own.

(HK Edition 01/15/2013 page2)