What are some important financial decisions that Business Owners face in a slowing economy?
It has been said, “solidly run small businesses actually hold their own during downturns.” (Mark Vitner, a senior economist with first Union Corporation)
While all business owners would like to classify themselves as solidly Run”, Here are some of the thing that I believe warrant consideration by any business owner during a slowing economy
1) Should I Reconsider and/or revise the existing business plan?
One of the most important things you can do during an economic downturn is to evaluate your business plan. All businesses need a plan to define where they are going and how they are going to get there. (http://www.bizplanprep.com/)
Your business plan is the working base for your company. Have your current day to day operations led you to a new position in the marketplace? Or have you strayed from a successful formula? Should you write a new business plan? Should you reinforce the guidelines for the current business plan? Sit down and examine the plan from the viewpoint of an investor looking to purchase the company and make any revisions that seem appropriate.
2) What should I do with the budget?
In a downturn one of the first places many businesses cut expenses are in advertising – a real mistake. As part of the philosophy of expanding your base and recruiting more customers, you need to advertise and sell more than ever. People are looking for better ways to do business. If you have established strong customer satisfaction, this is the time to get the message out.
3) Should I start a power circle or an advisory board?
Advisory Boards are being implemented by companies globally to leverage knowledge.(http://partner-com.com/advisory.html)
Advisory boards consist of industry and community leaders i.e.: attorneys, certified public accountants, civic club leaders, owners or managers of businesses similar to yours or with whom you do business, also retired executives may be available. The latest industry jargon for these types of boards is “Power Circles.” An apt name because the members should be power connections for you – knowledgeable about the marketplace in which you do business. These individuals should be able to provide you with the information that you need to make good decisions. The purpose of the board is to offer you a viewpoint other than your own. They should be people you can be truthful with and who will keep your disclosures private. Most groups like this discuss specific business problems you have, using the meeting to brainstorm possible solutions. If you don’t belong to civic and professional organizations, find some and join. Here are groups of people facing similar challenges to you. Their joint expertise and resources can be a powerful support mechanism when times are tough.
4) How much emphasis have I placed on customer service in the past?
Your loyal repeat customers are the lifeblood of your business in any economic climate. In a downturn they are what keep you in business. Treat them very well. Spend time listening to your clients to hear what they like and do not like about the methodologies and systems in place. Change those that your customers do not like that are not essential to the business model. Take time to be innovative in meeting your customer needs. Perhaps taking the time to computerize customer information would allow you to more easily access their particular preferences and respond quickly to their needs. Perhaps taking time to call special clients to discuss how you could serve them better would be productive. Maybe an extra driver would reduce your delivery time. Do whatever you need to do to keep your current customers loyal and to position yourself to win new customers.
5) How Do I Expand Relationships with Existing Clients/ Sign More Long-term Deals
Given that your customers are satisfied, they should want to do more business with you. Find out if there are ways you can grow the depth and breadth of the product lines you have been delivering. By offering more products or services or fulfilling other needs that they have. Long-term relationships add to your security. So, if you have happy customers, offer a discount to those who are willing to sign a long-term contract or who are willing to pay cash up front for a contracted set of services. Cash up front is particularly attractive because it makes you look good on paper and can allow you to lock in favorable financing from financial institutions.
6) When should I Seek New Business Opportunities (Diversify)
A downturn sounds like a terrible time to diversify, doesn’t it? But there are opportunities out there to be taken. And given that you have done your homework in establishing yourself on a solid financial base, this is an opportune time to broaden your base. Diversification gives you more stability because a down market in one product may be compensated for by another product. The tricky part is, of course, finding complementary products that face differing market challenges. You don’t want to stretch your expertise by producing totally different products, yet you do want to target different types of markets so that softness in one may not be mirrored in the other. A simple example of a way to seek new opportunities is to establish an Internet business for a retail store. You have provided a new way to service your regular customers and expanded the audience you reach.
7) Should I Form Alliances
Alliances with your vendors or with closely aligned types of products is always a good way to strengthen your customer base. With the right alliance you are reaching a broader spectrum of possible customers and you have more to offer each potential customer.
8) Can I Diversify My Customer Base
It may be possible that you have been selling to a limited subgroup within the community and you can expand the appeal of your product to a wider audience. For instance, you may be primarily selling to a specific age, ethnic, or gender group and with different advertising or a slight modification in the product, you can reach a broader spectrum of the population. Simple things like instructions in another language or wording advertising slightly differently can have a major impact in which new customers your business attracts.
9) Can I Find Ways to Save Time and Money
Collections are a great place to start in tightening your belt. Not only do you need to be providing incentives to your customers to pay on time or even early, but you need an efficient collection system that gives you advance warning of problems as they develop. Similarly, you need to be paying your bills on time and taking advantage of every possible discount that you can.
Look at fixed and variable costs. What among the variable costs can you cut back on or put off for later? What among the fixed costs can you find a better deal on or negotiate more favorable terms for? And, pay attention to your banking relationships.
Keep in touch with your banker, apprising them of any company developments. If you face a tight situation, having your banker knowledgeable about the positives of you and your business will make them much more amenable to helping you through difficult times. Consider lowering your prices. You need to maintain your profitability, but you also need to retain your customers who are also most likely hurting. If you can find more efficient methods that allow you to cut costs, not only will you retain your customers, but you also may attract others.
10) Am I Watching for Signs and Acting on Them
Look for changes in psychology and behavior in your clientele. They may be spending less or putting projects on hold. They may not be paying their bills as quickly. If you are in touch with your customers, you will be aware of differences in buying habits. Contact them before they contact you about what the problems are. Can you help them in some way? You can gain a longtime relationship with a customer by approaching them proactively with the view of being there to help them through their own hard times.
11) Have I Mobilized My People to Save Jobs
Economic downturns are scary times for employees. Many firms cut personnel and add to the workload of the remaining employees. Involve them in cost cutting. Let them know they are important to you and that you are committed to keeping them. If they know that they are perceived as an active part of the solution, they can identify sources of savings that never occurred to you. Find rewards that are not costly yet acknowledge their efforts. As hokey as it sounds, one successful businessman placed post-it notes on the restroom mirrors every evening noting positives that had been reported about various individuals during that day. It became a delightful, early morning ritual for the employees to discover each morning what the CEO had noted from the day before. Proper application of any of these techniques will add to overall gains in profitability and morale this is what makes a “solidly run” business solidly run. It means returning to the roots of your business and making certain that every one is healthy. All of these principles are worth revisiting at least annually, in good or bad times.
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