Tips for weathering the Economic Downturn

Whether or not we are currently in a recession still remains to be seen, but strategies to hedge against our current economic downturn are tantamount to the survival of businesses large and small. With no economic relief in the foreseeable future, what can companies implement now to minimize the impact of our economy in the near term? Below is a summary of a few of the strategies that we have worked with our clients on. I hope they provoke some thought for you as well. Revisit your Business Plan  The strategic plan you devised for your company is your playbook and incorporates the mission, vision and values of what you are trying to accomplish as an organization. How close are you operating versus your original plan? With the rapidly changing economy, what changes or updates should you consider? Bring in a third party to review it as an objective reader and read it yourself as if you were about to invest in the company and make the appropriate revisions. Who are your advisors?  No member of Biznik is immune to the challenges we are currently facing in today's economy. If there's ever been a time to network, this is it. This membership should serve as one of your most important allies because they are knowledgeable about the environment and can help connect you with resources to assist you in making good decisions. A good advisor should offer you objectivity, be truthful with you and retain your confidentiality. Brainstorm with them and their joint expertise and resources should be a valuable asset to your business. Develop a strong strategy for raising capital  Don't put the viability of your company at risk with a serious cash position. Today's restrictive credit environment makes it vitally important for small businesses to have a strong loan request. Place emphasis on developing or maintaining relationships with your local banker. Having a solid history with an institution will make winning financing easier than without. Can you easily demonstrate your ability to generate cash and meet your obligation in paying down your loan or line of credit? Are you sufficiently capitalized to weather downturns in the economy or other unforeseen events? Do you have sufficient collateral that most banks will require in order to grant your funds request? Do you have a well presented view of your growth projections for the next 12-24 months? Don't underestimate the emphasis on the need to demonstrate your cash flow to any potential lenders. Think twice about cutting your marketing budget  Simply stated - marketing leads to sales and sales mean cash for your business. This is the time to increase or at least maintain your current marketing budget. While your competitors may be reducing their marketing efforts, you can achieve a higher value for what you spend in marketing by having higher visibility and increasing your long-term competitive advantage. All businesses are looking for better ways to do business and marketing to them may entice them to do business with you. Because the stakes are higher, be sure your marketing campaign is tight and will provide the maximum return on your investment. Business owners should be looking to attract new customers and to diversify their customer base should a valuable relationship not survive. Review your pricing structure  This topic can sensitive and your exercise here should be complete and with careful thought. How do your prices compare with those of your competitors? You're more than likely have customers that are looking for their own ways to cut costs and retaining them is vital. You might also see new customers gravitate to your lower prices. Lowering prices can lead to increased sales and increased cash flow. Don't however undervalue your product of service and don't make concessions that give away what you should rightfully earn and definitely keep an eye on your margins and have an idea of what decreases in margin are acceptable to you versus increasing your sales. Offer Incentives If your sales are lagging behind plan offering discounts, additional value added features or special deals may increase your business development activity. You might consider offering your better customers discounts for pay early or upfront. While your margins will temporarily get squeezed, you may realize better sales and improved cash flow as result. Intangibly, this is a great way to strengthen the relationships with your customers - they're looking for ways to save money too. Power to the people  Absolute transparency with your staff during an economic downturn is absolutely vital. Employees will be extraordinarily skittish and require more information to preserve your culture and morale.  Being up front with your staff will create and reinforce an environment of trust which works both ways. Some of the best ideas on business development and cost cutting that you haven't even thought of may come from your staff. Avoid using emails, memos and conference calls to have these conversations. Face to face meetings let them ask you questions, look you in the eye and know that you are being transparent with them. Diversification  Spend during a recession? If you have prepared financially and have solid planning this is an opportune time for you to consider broadening your base of products and/or services. By diversifying your offerings, you potentially mitigate some of the exposure of a down market by making it up in another. Is there a strategic alliance with a customer or competitor that could enhance your current model? A word of caution: different products face different challenges in the markets they serve. Don't unnecessarily spread your expertise too thin trying to be everything to everyone. A very simple example of diversification would be a retailer broadening their reach by using the internet to attract new customers. This allows them to expand their appeal to a wider audience. Scrutinize your financials  Collections are perhaps the obvious area to focus on during a tough economy. We discussed providing incentives to customers to pay early, but above and beyond that - improve your process for collections that ensure that you have visibility into customer trends that serve as advance warning that there may be a problem on the horizon. Speaking of incentives - are you utilizing the incentives your vendors are offering you such as taking all your discounts? Review your variable costs on a monthly basis. What are you spending that can be deferred or cut without any material impact on your organization. Innovate and get creative on ways to reduce spending. On fixed costs, are there better deals out there or can you negotiate your existing agreements? What capital expenditures are you looking at making and have you done your due diligence on your financing alternatives? Manage your risk  A downturn in the economy should also raise your awareness of risks outside of your company financial arena.  Employees who may feel uncertain about their ongoing earning potential may file workers compensation claims to ensure a paycheck in the foreseeable future. Separation can also lead to claims of disparate treatment. Pay close attention to sales, overhead and cash flow. With the uncertainty in credit markets, don't let your financial resources evaporate should your bank change the terms of your borrowing agreements. Communicate with your banker - being transparent with them can avoid surprises, strengthen your relationship and increase the likelihood that they'll be an important ally should you run into trouble. Innovate  How can innovation help during a recession? Companies that innovate during a recession statistically outperform those that cut costs and battening down the hatches. How can you innovate yourself in the relationships with your suppliers? Can you collaborate with them on something that will be mutually beneficial to your relationship instead of hammering them on pricing? What about with your customers - what value added services or products can you develop for or with them to enhance those important relationships. What about with your employees - are there ways to cut costs and increase profitability and make them stakeholders in your organization? Take advantage of the opportunities that come with a bad economy instead of focusing solely on the risks. Make Lemonade  With higher unemployment rates come a higher quality of candidates looking for work. Even if you don't have an open position, develop a process for building your network of candidates and stay on touch with them even if their skills are not exactly in line with what you are looking for today. Staying in touch with your competitors customers during this time may ensure that you are the first on their list should your competitor not survive the downturn. Finally, economies are cyclical and the good news is what goes down will eventually come up. Implementing best practice today will help you mitigate the risks of the economic downturn today and lead to higher profitability and value when the economy rebounds.   Reprinted with permission from CFO Seattle 2008-09-04T16:46:12Z

2008-09-05T15:04:43Z

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2008-09-05T15:04:36Z

Confused about the impact of our current economy on your small business? Please take a look at this article for tips on mitigating the current business climate.

Tips for weathering the Economic Downturn

2009-02-24T09:45:51Z