Recession Proof Your Business
Recession Proof Your Business
Take These Steps To Survive The Slowdown
By Don Sadler
Micro-business owners aren’t escaping the anguish of the economic downturn.
In a recent online poll conducted by the NASE, 86 percent of respondents
reported a moderate to significant impact on the health of their firms. Three
out of four described the effect on their business as negative and said that the
cost of running the business has increased, revenue and sales are down, and
they’re refraining from purchasing new equipment and inventory.
Most
micro-business owners will tell you that whether or not the economy has actually
tipped into an official recession is a debate for the economists. All they know
is that the economic slowdown has affected their businesses.
Jim
Blasingame, host of The Small Business Advocate syndicated radio talk show and
the author of “Three Minutes To Success” (SBN Books, 2006), emphasizes that the
current economic environment offers both challenges and opportunities to
business owners.
“I call this the ‘odd couple’ of small business —
whether the economy is rockin’ and rollin’ or in recession, there are always not
only challenges, but also opportunities for owners who are prepared.”
In
today’s choppy economic environment, what are some steps you can take to not
only survive, but thrive? Follow these guidelines.
Focus
On The Fundamentals
“It’s really a matter of going back and
focusing on the fundamentals, especially with regard to your business finances,”
says John Barrickman, president of New Horizons Financial Group, a consulting
firm based in Roswell, Ga., that specializes in small-business financing and
management. “These are the things owners sometimes forget about and let slide
when times are good, but become critical when the economy slows down.”
Blasingame concurs. “Manage cash flow like it’s the air you breathe.
Watch your costs like a hawk. Declare war on excess inventory. And spend less
time listening to the talking heads on TV and more time listening to your
customers to find out how you can better meet their needs.”
The first
thing to focus on is operating expenses, Barrickman says.
“You should
cut or eliminate any expenses that are unnecessary and aren’t critical to
running your business.”
But Barrickman’s advice comes with a caveat:
“Don’t cut out expenses that will impact the viability of your business or your
competitive position in the marketplace,” he says. “Companies sometimes look to
cut marketing and advertising, for instance, but that may be penny-wise and
pound-foolish if it lowers your sales. Similarly, if being an innovator or
industry leader is your source of competitive advantage, you don’t want to cut
back on R&D.”
The next thing to look at is fixed assets. Just like
expenses, you want to eliminate excess, nonperforming fixed assets that aren’t
contributing to the success of your business. This might include assets such as
excess equipment or a big SUV, says Barrickman.
“If an asset isn’t
performing, cut it loose, even if you have to sell it for less than you want
to,” says Blasingame. “What something was worth last year has no bearing on what
it’s worth today — and it may be worth even less tomorrow.”
Scrutinize Inventory And Receivables
Your next step
should be a careful examination of your investment in inventory and receivables.
“You need to understand the benefits of monitoring inventory levels with
regard to projected sales, receivables and cash,” says Blasingame. “Don’t let
one piece of inventory spend the night on your shelves unless it’s absolutely
essential.”
Barrickman points out the need for good inventory management
systems that will tell you precisely what is selling and what isn’t.
“You might even consider selling some inventory at a loss just to
generate more cash and eliminate carrying costs,” he says. “The idea is to
optimize the current assets on your balance sheet — to squeeze cash out of your
balance sheet however you can.”
In fact, having reliable and current
data is one of the keys to making it through an economic slowdown.
“Re-examine your internal control systems,” Barrickman recommends, “and
upgrade them, if necessary, to make sure you’re getting the information you need
to properly manage your finances. You need to be able to carefully monitor your
cash position to maintain adequate liquidity, because this is what will
ultimately determine whether you’re able to hang on if things get tight.”
Your internal controls — which consist primarily of your financial
reporting and management systems for accounts receivable — should provide the
data you need to create a list of aged receivables that will tell you which
customers are paying you and which ones aren’t.
“Stay very close to your
receivables,” Blasingame urges.
Put a renewed emphasis on collection of
outstanding debts, especially those in the 30- to 60-day window, when your
chances of collection are still relatively high. You might even hire someone to
come in part time just to call these debtors and try to shake them loose.
You should also strive to build your emergency cash reserve and/or pay
down as much debt as you can.
And make sure you have access to credit —
preferably a line of credit with your bank, or even just a business credit card
– in case you need an emergency cash infusion. Now is the time to secure credit
if you haven’t yet, Barrickman says, as bank lending standards have already
tightened, and may tighten even more.
“Maintain an open and ongoing
dialog with your banker,” says Blasingame. “Keep him or her informed about how
things are going with your business, and don’t hesitate to ask for advice. An
uninformed banker is a scared banker, and nobody ever got any help from a scared
banker.”
Look Beyond the Financials
On the
nonfinancial side of your business, one of the most important steps you can take
is to stay in close contact with your customers.
“If possible, call on
every one of your customers personally at least once in the near future,” says
Blasingame. “Don’t just assume that their economy is bad. Remember that somebody
is buying something from someone somewhere, so it may as well be you.”
Also focus on providing what your customers want, not necessarily what
they need, Blasingame advises. “Needs are commodities, but wants require
customization, which small businesses are often uniquely equipped to provide.”
Blasingame does urge caution when it comes to rolling out new services
or investing in new products and innovations in the current uncertain economic
environment.
“This is probably not the best time to try to get out on
the leading edge. If you miss your mark, you could end up on the bleeding edge.”