Recession-Proof Your Business – 10 Tips to Implement During Tough Times
Do you know a business that is doing well while our economy is weakening? It’s true that stories abound of reduced revenues, lay-offs and even business failures. Yet, often in hushed whispers, there are stories of companies doing well, even expanding. New companies are starting up. How can this be? Here are 10 tips that can help your business thrive while those around you may be struggling.
1. Cash Flow: For most businesses, cash is king. It must be properly and carefully managed. Look closely at your balance sheet. Develop contingency plans by assuming a drop in revenues of 10%, 15%, even 25% and identifying what changes you would implement, and when, should the worst happen. Closely monitor your actual expenditures against your budget and be prepared to react quickly.
2. Credit: The time to talk to your banker about your lines of credit is not when you need funds. Before your finances reach a troubled condition, it may be wise to increase your available lines of credit. Bankers are more confident with a business manager proactively preparing with a well-thought out plan, than with one who is reacting to a situation that has already gotten out of hand.
3. Accounts receivable: Pay close attention to the age of your receivables. That customer who used to always pay on time may be experiencing cash flow problems. A careful and candid discussion early may help both of you avoid an uncomfortable situation later. You may be willing and able to work with good customers, but if that customer goes under your chances of collecting are slim. If the customer is not contributing to your bottom line, it may be better to cut them off early than to let them run up their debt and not get paid.
4. Accounts payable: If your receivables are aging a bit longer than before, try negotiating with your vendors to extend their payment terms. They’ll appreciate your frankness and if you can extend your terms to more closely match your receivables DSO, your cash flow will improve significantly.
5. Spending: Look for discretionary spending items that you can reduce or eliminate. Your employees are concerned about the security of their job and are watching to see what you’re doing to secure company finances. You might think tightening your belt sends the wrong message but they’ll feel better knowing that you’re eliminating the donuts or complimentary coffee. Even if you don’t need to cut back, sending a message of preparation is welcome.
6. Research: Analyze how a recession could impact existing or potential customers. You may need to eliminate a line of products or modify a service to continue providing essentials while cutting out the frills. Your customers are facing the same conditions as you, so providing them appropriate solutions to their continuing needs makes you a better partner. Can you sell in smaller quantities, ship more efficiently, or recommend new products or services needed in the current economic climate? Is there a new niche you can fill?
7. Take what the economy gives you: Are you willing to do business that you avoided when times were better? A real estate agent who avoided first-time buyers because they were unsophisticated, purchased smaller homes, and didn’t have a property to list (creating the potential for 2 commissions) is likely to starve if he doesn’t change. The first-time market is hot but it requires knowledge of short sales, foreclosures, and working with banks. This might not be an area of strength or comfort, but a willingness to learn provides a new stream of revenue.
8. Pricing: Closely linked to cash flow and receivables, aggressively managing your pricing model will keep you strong. Raising prices to adjust for reduced unit sales or cost increases is likely to irritate your customers. Negotiating with your vendors and increasing your productivity should be your first choice. Innovation comes more often from challenges than good times. Your employees may have ideas for eliminating wasted steps that will help them get more work done. Carefully monitor gross and net margins. It is the rare company that can lose a little on every transaction and make it up on volume!
9. Loyalty: Relationships are most important when times are tough. Use caution when dealing with customers and vendors alike. Your willingness to stick by a long-term customer, and to remain with a vendor you’ve used for years, will pay great dividends while times are challenging, and especially when the economy turns around. People remember how they were handled when they were stressed. Scars can last a long time.
10. Never stop marketing: Most companies are finding new customers harder to come by, and existing customers cutting back. Your sales efforts are likely meeting with more “no’s” and the return on marketing expenditures is slipping. Stay in the game. When they said that ‘the tough get going when the going gets tough’, this is what they were talking about. Your measures of success may be slipping; increased activity is the antidote.
Luck exists when opportunity meets preparation. Establishing a financially sound business model while positioning yourself within the economic climate and the relationships you’ve developed will help position your business for new opportunities and streams of income.
