About UsA Small Business Guide to Weathering the Economic Storm
By the LaGuardia SBDC
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There is no question the small business community is facing challenging economic times. While there are businesses managing to hold steady, many others are facing very difficult circumstances caused by the drop in consumer demand, limited access to capital and unpredictable economic conditions. However times such as these stir up an urgency that businesses can embrace to become more efficient, aggressive and creative.
Especially as the businesses community is bludgeoned with negative news about the economy, it is important for business owners to avoid making generalized assumptions and to be specific and factual about the health and direction of their business. To help businesses successfully weather the economic storm, the LaGuardia SBDC wants to share the following key recommendations.
Evaluate the true state of your business – If your bookkeeping has slipped, you must immediately update your records and check the health of your business. Do you have a realistic plan to meet the requirements of your short and long term business debts? Analyze your cash flow. Are you letting go of money too early and collecting it too late? Be sure to cut unnecessary expenditures to preserve cash and know if you are meeting your break-even point. Also, do a SWOT analysis accounting for your internal Strengths and Weaknesses and external Threats and Opportunities (a productive management team activity). Always make informed decisions and identify risks. The longer it takes for you to spot issues the fewer options you will have available to resolve them.
Ensure access to capital – Meet with your banker. Will you be able to qualify for credit if you need it? Discuss the financial products you may already be using and the stability of their terms. In these times, business lines of credit are being capped or converted to loans and rates are changing. Don’t neglect to speak with your suppliers about your credit terms as well. Finally, you must keep your credit strong, maintain complete financial records and show profitability.
Enforce the 80/20 rule – If your business is like most others, identify and focus your efforts on the 20% of your clients who generate 80% of your revenues. Show your appreciation, strengthen your relationship through visits and communication, anticipate and exceed their expectations and most of all, evaluate the risk of losing them due to the economy or other factors.
Step up the customer service – This is one of the most important and cost-effective improvements you can make on your business. If you are in touch with your customers, you will be aware of differences in buying habits. Be proactive. Contact them before they contact you about problems. Can you help them in some way? Learning your customer’s needs can generate sales. Establish a customer relations policy that cultivates customer loyalty and that personalizes and professionalizes your services. Customer service is also one of the values you can offer your potential customers to avoid a war with competitors based only on price.
Offer Something Different, Get Creative - Offer a temporary discount to those who are willing to sign a longer-term contract or who are willing to pay cash up front for a contracted set of services. You can lock in your long-term agreement at lower prices. When lowering your price, make sure to cover your breakeven. These types of agreements are best when specified for a particular period of time. The stipulation - once the economy has turned for the better, prices will return to the pre-crisis rate or with an increase in price. This kind of agreement can greatly secure your revenues, while simultaneously increasing the competitiveness of your business. You also fortify a long-time relationship with a customer by working to address their needs as well as your own in hard times. If you can find methods that allow you to slash prices, not only will you retain your customers, but you also may attract others.
Shorten your sales forecast – Sales forecasting helps businesses decide how much inventory purchase, how much staff to hire and how much money to borrow among other major decisions. In better economic conditions businesses can cast their sales projections out further more confidently. However, as consumer behavior is changing, businesses can reduce risk by working within shorter and more predictable time frames. So if you are making decisions based on quarterly projections consider working month to month to align your expenditures more closely with expected income.
Stage your work projects – Consider breaking more complex and longer-term projects into smaller components allowing you to collect payments more frequently and reduce how much capital that needs to be advanced for long-term projects.
Stay on top of your account receivables – make sure your collections process is clear, systematic and firm. Incentivize your customers to pay early or on time with discounts and penalties. Also managing your account receivables is a high contact sport. From the beginning of the relationship, keep your clients in close contact through visits and frequent communication.
Reach out and negotiate – It has been said that, “All things are negotiable, some things less.” Behind the agreements and contracts that frame your business relationships are individuals. Don’t assume that terms and conditions are fixed and immovable. Recognize the interdependencies you share with your customers, suppliers and landlords, and reach out to open a discussion about how to re-create a mutually sustainable relationship in these difficult times. And remember, negotiations are not confrontations but rather two parties working together to find solutions to their respective problems.
Market Smarter – Pulling back on marketing makes the assumption that you will have lower sales in a down economy a self-fulfilling prophecy. Evaluate the effectiveness of your current marketing activities and channel your resources to where your marketing dollars are yielding the most clients the quickest. Remember – some low cost marketing methods can be the most effective – attending networking mixers, marketing to your database of past and current clients, investing in the search engine optimization of your website - just to name a few.
Adapt your model – Any business, no matter what its model, needs to be able to adapt the changing needs of the market. You may find yourself needing to rethink your model given the current market conditions. Assess your model and act quickly. Turn-around strategies can take time and also unveil new risks. To remain competitive, you may need to step your products and target market up or down to follow how the current economy has reshaped consumer preferences. Think of how to diversify your products and services and broaden your consumer base.
Get your team involved – To overcome any challenge or achieve a goal you need your team to buy in. Be honest with your team about the state of your business; share your vision for its future and then involve them in developing the strategies and tactics your business should employ.
Build your cash reserves - Harvest of portion of your revenues to have cash for the unexpected. Many businesses that are struggling at this time are those who have not saved for a rainy day. Good businesses can fail simply because they could not bridge the gap between their account payables and receivables in slow times. Protect your cash – make only necessary investments and be realistic about whether you can expect short or long term returns from them.
Touch base with your professional circle – Meet with your professional advisors including your banker, accountant and SBDC Business Advisor. In times like these, rumors and assumptions abound – seek expert advice and ground level viewpoints derived from their daily interactions with businesses just like yours. Provide a candid description of the state of your business and consider their feedback.
Network – Joining a chamber of commerce and/or other business associations can 1) bring you face to face with potential clients, associates and professional resources, 2) give you valuable information and perspectives and 3) allow your interests and concerns to be represented more influentially before industry and government policy makers. Engaging these networks is even more important in time such as these.
