Economists called the beginning of the current recession as December 2007.  That means we’re in the 15th month of the downturn and no economist has called the bottom yet.  They can’t even see the bottom.  The National Bureau of Economic Research identifies 11 recessions since 1945 with an average duration of 10 months.  (http://en.wikipedia.org/wiki/List_of_recessions)

So what does this mean for your business, besides being tired.  It means that there is something different going on here than any of us have lived through.  It also means that previous strategies for “waiting it out” won’t work this time around. Then what is a business owner to do.

Manage your business as if the revenue stream you are receiving today is normal.  Manage as if your business is competing for survival with other competitors.  Manage to grow, manage to win.

Most companies are cutting all “non-essential” spending to protect employee jobs.  This means that companies are cutting marketing, research, and staff training to avoid lay offs or salary reductions.  It’s tough to reduce employee costs, especially in small companies where relationships are the culture.  These are good employees and don’t deserve to have their income cut back or eliminated, or their benefits reduced.

If you’re managing for the long term, you must keep your financial ratios in line, especially in your key performance areas.  That means that the long term health of your business, for current and future employees, may be best served by adjusting your payroll as revenues change.  It’s tough, but that’s what successful managers do.

There is a little know unemployment program available to business owners to soften the hit.  By pre-arranging with the state unemployment department, you can reduce employee compensation, either hours worked or salary reduction, up to 20% and your employees will be eligible to receive an unemployment benefit to help offset their reduction in compensation.  You keep your employees while reducing your payroll expense, and no one gets laid off.  Check it out.

I know people who say they embrace change and others who say they hate it.  I’d suggest to you that no one finds change easy – unless it is someone else who’s doing the changing!

There are four steps that we all go through during the change process.  Close your eyes and picture a ski jump.  It closely resembles the trip.

The first step is “Norming.”  You’re standing at the top of the hill ready to go.  You believe in the concept of change and have faith that it will be a good thing.  So you push off from the starting gate and begin.

You start heading down the hill still confident, but beginning to ask yourself if this was such a good idea.  As you gather speed and face the reality that change requires letting go of the comfort and security that “sameness” provided, you start to question your sanity for ever starting this “change thing.”  You may even want to stop and go back up the hill to where you started from.  Because this second step is a battle with self, it is called “Storming.”

You reach the bottom, level off, and start upward toward the end of the jump.  This third step is called “Forming.”  You’re letting go of the old ways and ready to “launch” into the change.  Your not certain how good it will be, but you’re beginning to believe that something exciting is about to happen.

The fourth step is “Soaring.”  You’ve successfully moved past your comfort with the “old” way, found value in the “new” idea, embraced what it has to offer and take off with confidence that you’re trip through the change process was the right decision to take.

You may be a daredevil and find the “Storming” trip to be exhilerating, or a risk-averse person who requires a strong push to head down that hill.  The process of change does not come easily nor without a rush that challenges your beliefs and pulls you out of your comfort zone.  When the time comes, you are likely to find it easier to leave the starting gate when given a little push by a business coach.

Good luck, and enjoy the ride!

Most small business owners started their business to do what the business does.  They did not start a business to manage HR, deal with past due invoices, or figure out how to market on social websites.  They especially didn’t start a business for the ‘opportunity’ to manage financial reports.  Yet, these are the primary responsibilities of the owner and will determine the difference between success and failure.

Almost every business owner turns their financial information over to someone else to prepare financial statements.  If the only statements you receive are produced once a year by your CPA at tax time, shame on you.  That’s like flying a plane in the clouds without gauges.  You may get by for a while, but sooner or later you’re going to crash.  At a minimum you should be seeing quarterly statements.  Monthly statements are far better.

Don’t misunderstand, though.  It does you little good to look in the rear view mirror when you own a business.  You look at the financial reports to evaluate whether your tactics are working to achieve your goals.  The primary benefit for a business owner is the trend analysis developed with those financial statements that enables you to predict the future, and the operational changes you need to make to reach your objectives.

Ask your financial professional for assistance in developing a dashboard of key performance indicators for your company.  They should be able to help you.  If they look at you like a deer in the headlights, get another financial advisor or find a business advisor that can help you.  Just as the pilot doesn’t need to know where all the information comes from that displays on his dashboard, you only need to know how to read the “gauges” to know if you’re flying straight and true to your goals, or if you’re veering badly off course.

Are you as frustrated as I at the number of people doing nothing but hanging on to see what’s going to happen?  How about the leaders who keep telling us how bad things are going to get?  To make matters worse, the message is not to grab yourself by the bootstraps and be the solution.  It is to sit back and wait for the government to do something for you.

It’s time we each take responsibility and get going.  It’s tough out there, no one is denying that.  But nothing is more destructive of the human spirit, the American spirit, than sitting around feeling sorry for yourself waiting for someone else to make it better.  In the infamous words of Flight 91…

LET’S ROLL.

A couple of weeks ago there was a story in the news.  Seems a soldier home on leave received a gift from his girlfriend.  The gift was a parachute jump, his first.  This soldier dutifully completed all the required training and readied himself to leap from the plane.  This was to be a tandum jump which meant he was strapped to the belly of an experienced jumper.  After jumping from the plane, the soldier was merely along for the ride; the professional would pull the ripcord at the appropriate time and steer the pair to a safe landing.

Sometime after exiting the plane, the soldier felt something was wrong.  They were free-falling, maybe a bit too long.  In what had to be a moment of concern (to say the least) he realized that after jumping, the person to whom he was strapped was dead.  He was on his own, a few thousand feet in the air, racing to the ground at terminal velocity, about 250 miles per hour.

I am happy to report that this is not a disaster story (except for the poor trainer).  Our soldier managed to find and pull the rip cord and figure out how to steer himself and the attached limp body to a safe landing, avoiding a few houses along the way.

In your business, are your employees empowered to think and respond to events that are happening around them.  Are they comfortable making decisions when confronted with unexpected circumstances.  It certainly takes some training but they can’t be trained for every event.  They need to be able to think for themselves.  Had our soldier looked around and waited for someone to give him permission to pull that cord, we’d be scraping him up with a puddy knife.

Can your employees prevent your company from going, “SPLAT”?

What a day! Regardless of your political point of view, the peaceful transfer of power that is the cornerstone of the American political system is something to celebrate and watch with awe. In few other countries, and certainly none with the power of the United States, does the government pass from one person and party to the opposition without significant strife. In most countries it occurs at the end of a gun. So whether or not you are a supporter of President Obama’s policies, today is a great day for democracy.

For leaders, this is also a day to observe how people react to change. We will see tears of joy and tears of fear. We will see celebration and grieving. Some will see the coming greatness while others see the coming Armageddon. In these times of change, leaders are responsible for managing the change process and the emotions it elicits. The supporters of the change will see only the benefits and they will refuse to see, or are simply blind to, the potential pitfalls. Those who don’t support the change see only the failure lurking on the horizon. They are incapable of accepting that the change offers opportunities for growth and improvement. If the leader fails to manage this process properly, the result will be a failure to grasp opportunity and serious damage to the culture of the organization.

It’s been 16 years since the United States had an inauguration that was truly celebrated. Midterm inaugurations don’t carry the same anticipation that accompanies a change of presidents. Bush came to office in 2000 amid the trials and tribulations of the Bush-Gore debacle, settled only by a divisive Supreme Court decision. So it’s been since Bill Clinton took office in 1992 that we’ve seen a celebrated change of power, something few of us can remember. The youth so pivotal to the outcome of this election were elementary school children at the time. There was no internet, I-phones, laptop computers. Wow!

So business leaders, executives and supervisors alike, should step back for a moment to observe and learn a few things from this change process. It is your job to marshal change through your organization. While the affect of your actions may have little impact on the country, the impact on your organization is no less impactful, the emotions and expectations of your co-workers no less real. You will create anticipation as planning for the change takes place. When the “change” is to be shared with the team, there will be expectations created by the listeners. Too much hype and the announcement is a let-down. Too little and the impact becomes magnified and distorted. Either way, they will watch to see what follows the announcement either clamoring to get on board and yawning and exclaiming, “Same story, different week.” “Wait a minute and this too will pass.

It is too early to draw conclusions about the new president’s inauguration address. But when change management is your job, watching what the nation goes through and learning from the observations will make you better and more effective at moving your organization into uncharted territory.

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.

Most business owners know there is little room for error right now. So, with which areas of your business do you have to be especially careful?

It is undisputed that your people are your most valuable asset. From efficient operations to new ideas for generating revenue, the contribution your employees make to your organization cannot be overlooked. Ideally, your staff is contributing positively to your company now. But don’t assume that they, and you, are functioning at the peak of your capabilities. This is the perfect time to invest in additional training. Whether it is broad staff development, like leadership or management skills, or something more technical, an investment in yourself and your employees will generate the best return.

Unfortunately, some employees may not be contributing positively to your business. You’ve worked with them, explained your expectations, offered training or some accommodation. But they’re just not on board. Don’t let a negative situation linger too long. These people are more of a drain on you and the rest of your team than it is worth. Help that employee find a better situation by moving them on. We prefer employees who self-select out. But if that doesn’t happen, you have to bite the bullet and let them go.

If you can redistribute the responsibilities of the departing employee to others, do so. Often times, necessity brings out creativity and you’ll find ways perform tasks more efficiently. If you need to re-hire, take your time, know what you need, and hire wisely. You’ve got an excellent opportunity to strengthen your company with a good hire.

I tell my clients, “Hire slowly. Fire quickly.”

The next area to focus on is your plan. We don’t need to discuss here why a written plan is so important, especially when the economic climate is challenging. I do want to emphasize how important it is to have specific and measurable performance objectives. Your plan must include a few targets for your key performance indicators. Key performance indicators are those statistics that best measure the health of your company. They could include revenue dollars per employee, widgets produced per hour, or cash available to pay bills.

Successful business management, and your ability to grow during challenging times, requires a familiarity with your numbers. You must have at your fingertips more than last month’s financial reports. You need the key performance targets and your progress toward attaining them. This information will give you the ability to make operational decisions and to evaluate the effectiveness of those decisions.

Put the quality and development of your staff and knowledge of your numbers at the top of your list of things to do during these economic times, and you’re odds of success will improve immensely.

The comment I’m hearing most frequently from business owners I talk to is that they don’t know where the economy is going.  Some of that uncertainty comes from the impending change in the federal government and some of it comes from the seeming impotence of the bail-out efforts over the past 6 months.

After all, we’ve been hearing since September that the economy demanded huge capital infusions from the federal government.  Yet despite the $350 billion injected through the TARP program, the billions committed to bailing out companies including AIG, Fanny Mae and Freddie Mac, the auto industry, Bear Stearns and others, economists and business leaders don’t see the end of the current recession.  If anything, they seem to be getting more concerned, not less.

The other “change” that we’ve been told to hang our hat on is the inauguration of the Obama administration.  While we’re told to expect hope, change and transparency, the dearth of specific information coming from the transition team is creating more uncertainty, not less.

So what is a business owner to do?  How do you make plans for the future when you can’t get some degree of certainty about the field on which your business will be playing?  The typical business owner seems to be concluding that the best plan right now is to circle the wagons, make no plans, and react to the evening news.

Nothing could be further from the truth.  I say the “typical business owner” is circling the wagons, and that appears to be true.  The atypical business owner is planning for success.  They know that operating without a plan is the death knell of most businesses large and small.  Without a plan, it is impossible to make decisions, it is impossible to know whether you’re moving forward or falling behind, and without a plan, you can’t adequately react to the changes the economy throws at you.

If you think about it, in terms of planning, the current economy is no different than a booming economy.  Business owners need to look at the environment – the economy, competitors, internal strengths and weaknesses – and make assumptions about what the future holds.  Based on those assumptions, a plan is developed to take advantage of what the future offers.  For the past many years, we’ve had the advantage of a growing economy so our planning was, more often than not, built around assumptions of growth and prosperity.

What has changed is that growth and prosperity are out the window right now.  Your planning assumptions must be built on a weak economy that may be mired in contraction and stagnation for a while.  Planning is not done only in good times.  In fact, planning is far more vital now than in an expanding economy.  When times are good, you’re likely to succeed in spite of yourself.  But when times are tough, the quality of your plan will be the difference between survival and destruction.

For those of you who have developed a well thought out, written plan for your business for this year, congratulations.  You can move forward with the confidence of knowing that even if the economy continues to be challenging, you’ve already decided how you will best adjust your operations to survive.

For the rest of you, get to work and develop a detailed plan of action.  Contact your business advisor and develop the assumptions you believe best represent the climate in which you’ll be operating.  Then make a plan, develop your metrics to measure your performance against your plan, and modify your assumptions if they prove to be erroneous.

If you don’t have a business advisor you are confident can help, drop me a line.

Supervisors are the first line of leadership in your company.  The success of your organization lies in the supervisor’s ability to gain the willing cooperation of his direct reports.

Individual contributors spend 90% of their time in task-oriented activities and just 10% of their time in people-oriented activities.  The best of these workers stand out, either because of the volume of work they complete or the quality of the work they produce, or both.  These super workers go about their job conscientiously meeting and exceeding the expectations of their supervisors and gaining approval for their dependability.

In return, super workers are promoted to supervisors.  Nothing says more about a company’s commitment to its employees than to promote from within.  Typically, the manager calls the super worker into her office on Thursday and offers him the promotion.  Exhilerated, the new supervisor goes home and tells his spouse.  On Sunday night they celebrate his good fortune with dinner at the in-laws.  He reports to work Monday morning as the supervisor.

Sound familiar?  Few companies groom their management teams.  They don’t have a plan of succession and promote superworkers with the expectation that they will get the same level of performance from the people they supervise as they contributed as a worker.  What most companies don’t realize is that a supervisor must spend 50% of his time in people-oriented activities and just 50% in task-oriented activities.  The new supervisor is expected to succeed as a natural extension of his success as an individual contributor.

But most new supervisors don’t know what to do!  They have little confidence of themselves in a supervisory role.  Their direct reports today were co-workers just a few days ago.  Success was measured in personal output; now it is measured in the ability to motivate others to perform.  Most new supervisors are reluctant to perform as a supervisor so as to not lose the favor of former friends and co-workers, and so as not to overstep their authority.  As a result, they fail to meet the expectations of their manager or of their direct reports.

Supervisors must be trained to do the job well.  The ideal is to invest in a leadership development program specific to the needs of the new supervisor as part of a pre-determined succession plan.  Successful companies identify the leader-candidates in their organization and grow them into the next position – before they are promoted.  If the ideal isn’t possible, then shortly after the new supervisor occupies her position, participating in a supervisor development process is essential.  An investment in your human capital is a practical and strategic necessity and the return in productivity and performance will return that investment many times over both in employee satisfaction and retention, and in bottom line profits.

Leaders are not born.  They acquire their skills and attitudes through purposeful and careful training and development.  Leadership in your management team begins with the supervisors.  Don’t let your super workers down by promoting them into a new position without investing in their, and your, success.