“Use these tips to get thru the Crisis and prepare for the Recovery.” In other words “Survive until you Thrive !!! Peter/CXO Wiz4.biz
Survive, then Thrive Tips: Inventories, Cash Flow, Priorities, Debt, Collections, Capital Spending, Banking, Re-Rent don’t Rant, Service & Quality, Go for Grow, new Priorities, Training, Team Participation.
During Hard Times, running or managing a small business often leaves little time to keep track of economic indicators that might affect your industry and your specific operation. Yet conditions such as interest rates, inflation, gross national product, stock prices and consumer confidence have direct impact on your profitability and on relationships with suppliers, and even employees. During periods of economic declines, entrepreneurs are most likely to bear the brunt. Yet the fact that conditions are changing opens up opportunities for resourceful firms to outsmart larger competitors who, during a downturn, carry on business as usual or are unable to adapt quickly — except to layoff or fire employees.
#0. What can you do? Innovative small firms can:
- Gain market share by taking it away from competitors unable to adjust to shifting market conditions.
- Maintain a strong cash flow throughout the downturn (if possible or get govt help), in contrast to other companies that may have liquidity issues.
- Become a leaner, more cost-effective and more efficient operation, better positioned to do well when the market improves.
The challenge is to be aggressive and imaginative. Entrepreneurs who survive – and even prosper during hard times – must be able to look beyond the present, to overcome the constraints of tradition, to see the firm from a new perspective, and to do business differently. Here are 14 specific recommendations for small business owners and managers to follow during economic upheavals:
#1. Watch your Inventories carefully . . .
but don’t hold them down so tight that you’ll lose sales. Typically during a slowdown, there is an imbalance between slumping retail sales & bloated inventories. Don’t be saddled with leftover merchandise that ties up your cash flow. One possibility is converting inventories into cash. If your business traditionally stocks 250 units of each of its slowest-moving products, consider cutting that number to a fraction (1/2, 1/3 etc). Monitor the results, keeping an eye out for those products that can tolerate even leaner inventories or that should be eliminated from your stock. This way if sales nosedives, less of your cash is locked into unproductive assets.
#2. Monitor your Cash Flow diligently . . .
and forecast it monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Make sure your financial statements provide information that is timely, relevant & accurate. Cash Flow statements are superior in this regard to Income statements & Balance sheets. Be able to project where you will stand three months in advance. Negotiate with suppliers, contractors & landlords for better prices or short-term reductions. Even consider trading goods and services on a barter exchange for credits instead of for cash. Take advantage of supplier discounts for prompt payment, and don’t pay checks for no-discount bills before they’re due.
If the Cash Bind has already surfaced, talk to creditors before the bills are past due to persuade them to extend payments of your current bills. Your chances of getting their cooperation will lessen if you wait until they send collection memos. Keep in mind that suppliers’ credit managers will be more receptive – if your payment history is a solid one, and you can assure them future bills will be paid on time.
#3. Set new Priorities
Separate the “nice to do” from the “have to do,” and eliminate non-essential expenses as much as possible. Ask yourself: “Is that activity necessary? If not, don’t do it. Also consider cutting personal spending. Simple solutions such as brown bag lunches & car-pooling can make a difference.
#4. Reduce or stretch out Debt
and build up your capital Reserves. Watch the credit-worthiness of your customers, even bread & butter accounts. Remaining close to existing customers, and checking to see how they are getting on during the economic downturn, not only helps avoid unpleasant surprises, but could also lead to new opportunities. Besides, when sales are sluggish, keeping in touch with customers (always a sound business practice) becomes vital to head off eager competitors. If appropriate, encourage sales people to call on every customer on a regular basis, and set aside some of your own time to do the same. Frequent face-to-face meetings with your Client Base provides an excellent opportunity – probably your only one — to pacify disgruntled customers and win back lost ones. Try to lock up long-term contracts with your most important customers at anything approaching acceptable terms. Offer pre-payment incentives, for example, & discounts on long-term buys.
#5. Get aggressive with Collections.
According to the partner of a Consulting firm, “When business is good, companies tend to become lazy about collecting on receivables. This can prove dangerous in a recession.” Assume that the average collection period for your industry is 45 days, but your company is at 51 days. After bringing that collection period down to the industry average, keep working to get it down to 40 days. Being tough with customers may be unpleasant, but it’s an important safeguard against the effects of a prolonged economic slowdown.
#6. Capital Spending.
Consider delaying both the purchase of high-ticket items and expansion plans that take a long time to pay off. At the same time, make sure you have enough capacity to start filling orders again when the economy stabilizes.
#7. Strengthen your Banking relationships,
which includes letting Lenders know the company’s financial position. Banks are looking for business to boost their income, but are also trying to minimize risk, so they are careful about what kind of Loans they undertake. Most experts agree, however, that seeking additional credit during a recession is not advisable.
#8. Look for opportunities to reduce Rented space.
If, similar to many companies, you acquired space in anticipation of expansion that ultimately proved unnecessary, this may be a good time to sublet that space — thus reducing overhead & generating extra income. With this in mind, commit yourself to sub-Leasing a set percentage of your company’s space. By consolidating operations & removing un-used equipment, you may find that much of the space you thought you had to have was simply draining the bottom line.
#9. Be prudently aggressive in the Marketplace.
Actively seek out new business, and perhaps add a salesperson or two (on Commission only) or an extra service to give you an edge over competition. On the other hand . . .
#10. Don’t skimp on Service & Quality . . .
by being understaffed. Options include freelancers, consultants & part-time employees. One advantage of a slowdown is. hiring gets easier because there are more candidates from which to choose – due to layoffs & other cutbacks.
#11. Strategizing how to Grow
How to build your customer base & persuade current customers to raise revenues (so you can raise yours to them). The importance of good service cannot be over-stressed — especially as their buying power or willingness to spend is lessened during tough economic times. Studies show that perception of service is fixed primarily in terms of time in a customer’s mind.
- waiting time to obtain service;
- reaction time to deliver service; &
- length of time of the service.
Waiting time: phoning in orders or for information, prospective customers will hang up or walk out, if their time perception is strained. An informal, friendly attitude by owner-managers is key to a happy workplace, with emphasis clearly placed on the important role all employees play in meeting customer needs for attentive, timely service.
#12. Proper Priorities
Historically, many businesses reduce advertising & promotional expenditures rather than slash fixed costs during hard times. However, studies have shown that those maintaining or increasing Ad outlays during slowdowns, wind up out selling rivals who cut back. Savvy marketers can boost sales & market share, even if the industry in which they compete is in a slump, by focusing on short-term tactical techniques such as sales & price promotions and tailoring advertising in response to the shaky economic climate.
Survival Guidelines include:
- Monitor your Competitors’ advertising. If they’re cutting down, seriously consider increasing your ad budget & hitting ‘em harder. This will provide a great opportunity to capture — and retain — a larger share of the market.
- Avoid “gimmicky & clever” Advertising. Center your message on the benefits & advantages of your own product or service — such as convenience or energy efficiency – rather than making emotional appeals.
- Use Direct-Response Advertising techniques. Use hard-hitting copy with simple – but convincing – language (ie, a special offer the prospect will find hard to pass up, and a strong call to action).
- Avoid Ads that look like Ads. Make them appear to be vital messages to the consumer – offering them the most for their money.
- Stress Quality & Durability. Consumers are looking for as much “value” as possible in a weak economy. But don’t actually use the words “quality” & durability,” as they have degenerated into advertising cliches. Show, don’t tell !!!
- Study Advertising Research thoroughly. Know which page positions pull best, which copy factors work effectively, which colors do the job, etc. Spend every Ad $ carefully. Re-examine your Marketing Mix to ensure it is the most cost effective.
- Perceptions. Keep in mind that they play a major role in a week economy. If people believe money is going to be tight, they will behave as if it is — even if they have plenty of money to spend. Your Ads have to convince prospective customers that your product or service is a wise investment.
#13. Tenacity in Training
Another mistake during recessionary times is to reduce Training budgets. It can best be conducted during slack periods – especially low-cost, on-the-job instruction + broadened skill acquisition. Loco Community Colleges offer a number of free classes that teach & upgrade, trade & office skills + supervision techniques.
#14. Team Policy participation
Get employees involved in policy choices as well as tactics & implementation — asking, for example, if costs can be cut a certain percent without layoffs. If layoffs or a significant reduction in work hours are unavoidable, let employees take a lead role in determining the program. Shortened hours, job reassignments, job sharing & other alternatives may surface. Meet with staff regularly to exchange ideas on boosting productivity & other issues. Create an incentive for suggestions, and foster a team spirit for “survival” & “revival”. Remember, that employees need to feel they are important to your company, and that their work is challenging them up to their full capabilities. “Only do what I tell you” management styles need to be replaced, because small businesses – whose owner or managers are “the whole show” – can definitely benefit by encouraging workers on all levels to contribute their expertise – instead of just following orders. This is especially true during lean times when challenges to business success are greatest.
Pre-Active Strategy. While economic downturns are admittedly difficult, and increase the obstacles small businesses face in trying to survive & recover, it is not automatic that companies have to slash earnings & compress market share. That recourse befalls firms that take too long to realize what must be done, or which resist change.
Resourceful Entrepreneurs capture the available opportunities, and take steps during today’s hard times to lay the groundwork for tomorrow’s prosperity.
Comments: Do you know any Survival & Revival Tips to come thru a Crisis and be ready for the Recovery?
fm U.S. Small Business Administration (SBA) 4-20 enhanced by Peter/CXO Wiz4.biz