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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.”