EmpowerShop Pro-life

by: Terry H Hill

An eco­nomic down­turn is a phase of the busi­ness cycle in which the econ­omy as a whole is in decline. This phase basi­cally marks the end of the period of growth in the busi­ness cycle. Eco­nomic down­turns are char­ac­ter­ized by decreased lev­els of con­sumer pur­chases (espe­cially of durable goods) and, sub­se­quently, reduced lev­els of pro­duc­tion by busi­nesses.

While eco­nomic down­turns are admit­tedly dif­fi­cult, and are for­mi­da­ble obsta­cles to small busi­nesses that are try­ing to sur­vive and grow, an eco­nomic down­turn can open up oppor­tu­ni­ties. A well-managed com­pany can real­ize the oppor­tu­nity to gain mar­ket share by tak­ing cus­tomers away from their com­peti­tors. Resource­ful entre­pre­neurs cap­ture the avail­able oppor­tu­ni­ties, from an eco­nomic down­turn, by devel­op­ing alter­nate meth­ods of doing busi­ness that were never imple­mented dur­ing a prior growth period.

The chal­lenge of suc­cess­fully nav­i­gat­ing your busi­ness through an eco­nomic down­turn lies in the realign­ment of your busi­ness with cur­rent eco­nomic real­i­ties. Specif­i­cally, you, as the busi­ness owner, need to renew a focus on your core clients/customers, reduce your oper­at­ing expenses, con­serve cash, and man­age more proac­tively, rather than reac­tively, is para­mount.

Here are best prac­tices that will help you to suc­cess­fully nav­i­gate your busi­ness through an eco­nomic down­turn:

Goals:

The pri­mary goal of any busi­ness owner is to sur­vive the cur­rent eco­nomic down­turn and to develop a leaner, more cost-effective and more effi­cient oper­a­tion. The sec­ondary goal is to grow the busi­ness even dur­ing this cur­rent eco­nomic down­turn.

Objec­tives:

• Con­serve cash.
• Pro­tect assets.
• Reduce costs.
• Improve effi­cien­cies.
• Grow cus­tomer base.

Required Action:

• Do not panic. His­tory shows that eco­nomic down­turns do not last for­ever. Remain calm and act in a ratio­nal man­ner as you refo­cus your atten­tion on resiz­ing your com­pany to the cur­rent eco­nomic con­di­tions.
• Focus on what YOU can con­trol… Don’t let the media’s rhetoric con­cern­ing reces­sions and eco­nomic slow­down deter you from achiev­ing busi­ness suc­cess. It’s a trap! Why? Because the con­di­tion of the econ­omy is beyond your con­trol. Sur­viv­ing eco­nomic down­turns requires a focus on what you can con­trol, i.e. your rel­e­vant busi­ness activ­i­ties.
• Com­mu­ni­cate, com­mu­ni­cate, and com­mu­ni­cate! Beware of the pit­fall of try­ing to do too much on your own. It is a dif­fi­cult task indeed to sur­vive and to grow your busi­ness solely with your own efforts. Solicit ideas and seek the help of other peo­ple (your employ­ees, sup­pli­ers, lenders, cus­tomers, and advi­sors). Com­mu­ni­cate hon­estly and con­sis­tently. Effec­tive two-way com­mu­ni­ca­tion is the key.
• Nego­ti­ate, nego­ti­ate, and nego­ti­ate! The value of a strong nego­ti­a­tion skill set can­not be over­stated. Nego­ti­at­ing bet­ter deals and con­tracts is an absolute must for realign­ing and resiz­ing your com­pany to the cur­rent eco­nomic con­di­tions. The key to suc­cess is not only know­ing how to develop a win-win approach in nego­ti­a­tions with all par­ties, but also keep­ing in mind the fact that you want a favor­able out­come for your­self too.

Rec­om­mended Best Prac­tice Activ­i­ties:

The Nuts and Bolts…

The fol­low­ing list of rec­om­mended best prac­tice activ­i­ties is crit­i­cal for your busi­ness’ sur­vival and for its growth dur­ing an eco­nomic down­turn. The actual finan­cial health of your par­tic­u­lar busi­ness, at the out­set of the eco­nomic down­turn, will dic­tate the pri­or­ity and urgency of the imple­men­ta­tion of the fol­low­ing best prac­tice activ­i­ties.

1. Dili­gently mon­i­tor your cash flow: Fore­cast your cash flow monthly to ensure that expenses and planned expen­di­tures are in line with accounts receiv­able. Include cash flow state­ments into your monthly finan­cial report­ing. Project cash require­ments three-to– six months in advance. The key is to know how to mon­i­tor, pro­tect, con­trol, and put cash to work.
2. Care­fully con­vert your inven­to­ries: Con­vert excess, obso­lete, and slow-moving inven­tory items into cash. Con­sider return­ing excess and slow-moving items back to the sup­pli­ers. Close-out or inven­tory reduc­tion sales work well to resize your inven­tory. Also, con­sider nar­row­ing your prod­uct offer­ings. Well-timed order place­ment helps to reduce excess inven­tory lev­els and occa­sional mate­r­ial short­ages. The key is to reduce the amount of your inven­tory with­out los­ing sales.
3. Timely col­lec­tion of your accounts receiv­able: This asset should be con­verted to cash as quickly as pos­si­ble. Offer prompt pay­ment dis­counts to encour­age timely pay­ments. Make changes in the terms of sale for slow pay­ing cus­tomers (i.e. chang­ing net 30 day terms to COD). Invoic­ing is an impor­tant part of your cash flow man­age­ment. The first rule of invoic­ing is to do it as soon as pos­si­ble after prod­ucts are shipped and/or after ser­vices are deliv­ered. Place an empha­sis on reduc­ing billing errors. Most cus­tomers delay pay­ments because an invoice had errors, and there­fore, will not pay until they receive a cor­rected copy. Email or fax your invoices to save on mail­ing time. Post the pay­ments that you have received and make deposits more fre­quently. The key is to develop an effi­cient col­lec­tion sys­tem that gen­er­ates timely pay­ments and one that gives you advance warn­ing of prob­lems.
4. Re-focus your atten­tion on your exist­ing clients/customers: Make cus­tomer sat­is­fac­tion your pri­or­ity. A reg­u­lar review of your cus­tomers’ buy­ing his­tory and fre­quency of pur­chases can reveal some inter­est­ing facts about your cus­tomers’ buy­ing habits. Con­sider sign­ing long-term con­tracts with your core clients/customers which will add to your secu­rity. Offer a dis­count for upfront cash pay­ments. The key is to do what it takes to keep your cur­rent cus­tomers loyal.
5. Re-negotiate with your sup­pli­ers, lenders, and land­lord:
6. Sup­pli­ers: Always keep your nego­ti­a­tions on the level of need, say­ing that your com­pany has reviewed its cost struc­ture and has deter­mined that it needs to lower sup­plier costs. Tell the sup­plier that you value the rela­tion­ship you have devel­oped, but that you need to receive a cost reduc­tion imme­di­ately. Ask your sup­plier for a lower mate­r­ial price, a longer pay­ment cycle, and the elim­i­na­tion of finance charges. Also, see if you can buy mate­r­ial from them on a con­sign­ment basis. In return for their price con­ces­sions, be will­ing to agree to a long-term con­tract. Explore the idea of bar­ter­ing as a form of pay­ment.
7. Lenders: Every­thing in busi­ness finance is nego­tiable and your rela­tion­ship with a bank is no excep­tion. The first step to suc­cess­ful rene­go­ti­a­tions is to con­vince your lenders that you can ulti­mately pay off the rene­go­ti­ated loan. You must point out to your lenders why it would be in their best inter­est to agree to a new arrange­ment. Show­ing them your busi­ness plan and your action plan that includes your cost-savings ini­tia­tives, along with “the how” and “the when” of the imple­men­ta­tion of your plan is the best way to achieve this goal. Explain to them that you will need their coop­er­a­tion to insure that you can sur­vive, as well as, grow your busi­ness dur­ing the eco­nomic down­turn. Nego­ti­ated items include: the rate of inter­est, the required secu­rity to cover the loan, and the begin­ning date for repay­ment. A begin­ning date for repay­ment could be imme­di­ate, within sev­eral months or as long as a year. The key is to real­ize that your lender will work with you, but that fre­quent and con­tin­ual com­mu­ni­ca­tions with them is crit­i­cal.
8. Land­lord: Meet with your land­lord. Explain your need to have them extend the term of your lease at a reduced cost. Make sure you have a clause in the lease agree­ment that enti­tles you to have the right to sub­let any or all of the leased space.
9. Re-evaluate your staffing require­ments: This is a very crit­i­cal area. Salaries/wages are a major expense of doing busi­ness. There­fore, any reduc­tion in the hours worked through work sched­ule changes, short-term lay­offs or per­ma­nent lay­offs has an imme­di­ate cost sav­ing ben­e­fit. Most com­pa­nies ramped up hir­ing new employ­ees in the good times, only to find that they are cur­rently over­staffed due to slow sales dur­ing the eco­nomic down­turn. In terms of down-sizing your staff, be very care­ful not to reduce your staff to a level that forces you to skimp on cus­tomer ser­vice and qual­ity. Con­sider the use of part-timers or the cur­rent trend of out­sourc­ing cer­tain func­tions to inde­pen­dent con­trac­tors.
10. Shop for bet­ter insur­ances rates: Get quo­ta­tions from other insur­ance agents for com­pa­ra­ble cov­er­age to deter­mine whether or not your present insur­ance car­rier is com­pet­i­tive. Also, con­sider revis­ing your cov­er­age to reduce pre­mium costs. The key is to have the right balance-to be ade­quately insured, but not under or over insured.
11. Re-evaluate your adver­tis­ing: Con­trary to the other cost-cutting ini­tia­tives, eval­u­ate the pos­si­bil­ity of increas­ing your adver­tis­ing expen­di­tures. This tac­tic real­izes the advan­tage of the reduced “noise” and con­ges­tion (fewer adver­tis­ers) in the mar­ket­place. The down­turn period a great oppor­tu­nity to increase brand aware­ness and cre­ate addi­tional demand for your product/service offer­ings.
12. Seek the help of out­side advis­ers: The use of an advi­sory board com­prised of your CPA, attor­ney, and busi­ness con­sul­tant offers you objec­tiv­ity and pro­vides you with pro­fes­sional advice and guid­ance. Their col­lec­tive expe­ri­ence in work­ing with sim­i­lar sit­u­a­tions in past eco­nomic down­turns is invalu­able.
13. Review your other expenses: Tar­get an across-the-board cost-cutting ini­tia­tive of 10 – 15%. Attempt to elim­i­nate unnec­es­sary expenses. Tight­en­ing your belt in order to weather the down­turn makes prac­ti­cal, finan­cial sense.

Proac­tively man­ag­ing your busi­ness through an eco­nomic down­turn is an enor­mous chal­lenge and is crit­i­cal for your sur­vival. How­ever, through well-planned ini­tia­tives, an eco­nomic down­turn can cre­ate tremen­dous oppor­tu­nity for your com­pany to gain greater mar­ket share. In order to take advan­tage of this growth oppor­tu­nity, you must act quickly to imple­ment the above best busi­ness prac­tices to con­tinue realign­ing and resiz­ing your com­pany to the cur­rent eco­nomic con­di­tions.

Copy­right © 2008 Terry H. Hill

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Terry H. Hill is the founder and man­ag­ing part­ner of Legacy Asso­ciates, Inc, a busi­ness con­sult­ing and advi­sory ser­vices firm. A vet­eran chief exec­u­tive, Terry works directly with busi­ness own­ers of pri­vately held com­pa­nies on the issues and chal­lenges that they face in each stage of their busi­ness life cycle. To find out how he can help you take your busi­ness to the next level, visit his site at http://www.legacyai.com
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