A Survival Kit For Small Businesses During A Recession
Recession affects everyone in our economy. Manufacturers, distributors, retailers and consumers are all negatively affected when the winds of recession begin blowing across the plains of a free market economy. But no entity on the business side of the equation is more impacted than the small business owner. Since they do not have the resources of the heavier hitters in the corporate world, small business owners are usually the first victims of reluctant banks and suppliers when the credit cruch begins tightening.
So, it’s important for small business owners to develop a business strategy for a sustained downturn in the economy. Reuters has come out with a report on strategies some successful small businesses use to prepare for economic slow downs. Here are the steps they recommend:
Secure your lending relationships
Consultant George Cloutier has advised Bruni and a host of other small businesses in industries ranging from restaurants to specialty manufacturers and distributors. He says securing relationships with bankers ranks at the top of his “to-do” list for small businesses. “Make sure you sit down with your bank very soon,” says Cloutier, who heads Orlando, Florida-based American Management Services. “If you’re having trouble … look for other sources.”
Improve your supply chain
Scout out the best prices on materials and equipment. “Shake up your vendors and look around,” says Cloutier. “Now is the time to make your vendors a little more competitive with you.” Know the rock bottom prices for equipment and shop around for the deals. Auctions are a great source of everything from office furniture to new vehicles.
Motivate your employees
Shift your employees, especially the sales force, to pay-for-performance incentives, says Cloutier. If you’re a manufacturer, reward the staff, regardless of level, if they figure out ways to make a better product for less money or reduce waste. “Share your profits with your employees, right down to the guy who machines the tools or the fender,” Cloutier says. And for the underperformers, he has a simple but direct approach: “Get rid of them.”
Clean up your financials
Marilyn Landis, a Pittsburgh-based consultant and former banker who chairs the National Small Business Association, cautions not to wait for the credit crunch to hit before cleaning up your financial statements, making them as transparent as possible.
Many small businesses, she says, are unfamiliar with the process of producing good financials because credit has been easily available to them. “They never had to present good, strong financial statements and different plans and to build a case for their finances,” says Landis, whose firm, Basic Business Concepts Inc., does financial management consulting.
Get a handle on your cost structure
Now is the time to question how much it really costs to deliver a service or make a specific product, says Landis, who notes that all too often companies are well versed in their pricing structure but not clear on which products are most profitable. Sometimes, she says, lower-margin products are the winners in a downturn if there is steadier demand for them.
Take a hard look at customers
Landis recommends reviewing Dun & Bradstreet credit reports for your current customer base to get a heads up on who might be in trouble. She also suggests periodically reviewing the media coverage on key customers to see if there are any red flags. And she advises clients not to get lulled into a false sense of security just because a customer might be publicly traded. “Don’t assume because they’re a public company, they’re never going to go bad,” she says.
Husband your cash
Bill Dunkelberg, chief economist for the National Federation of Independent Businesses and a business professor at Temple University, advises small companies to keep their inventories lean. “Don’t spend your money, your cash, on things you can’t liquidate,” Dunkelberg says. Be careful not to be lured by government inducements such as low interest rates or tax credits. “You don’t buy capital equipment that you don’t need right now,” he says. Meet the deadlines on your lending commitments but don’t rush to pay early, he adds.
Deborah Cohen covers small business for Reuters.com. She can be reached at smallbusinessbigissues@yahoo.com
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