16Feb

8 Small Business Strategies to Learn From This Economic Recession

Posted by Marcel Sim in Entrepreneurship

I can’t believe we didn’t learn them from the past recessions
1. Have a strategy ready to implement if your sales drop 10%. This is a normal business fluctuation. Too many businesses have grandiose plans for growth but don’t plan for this reality. Have a plan for what you would do if there is a 20% to 25% drop in sales. Almost all businesses will have a negative cash flow if they continue normal operations during this type of a sales decline. Either you will have a plan on how to significantly reduce costs or you will be borrowing money and putting your wealth at risk.
2. When times are good, pay down your debt, increase your lines of credit, and upgrade or replace your equipment. Pay as you go on these expenses. Put money away so you can live without a paycheck for 2 years. A downturn will eventually come and you will not have enough cash flow to pay yourself or pay off your loans. Your business will fail if you didn’t prepare.
3. When times are good, do everything you can to reduce your customer concentration. Even big customers will fail during a recession and if you concentrate your sales with them, you will follow them to failure. Also reduce your sales to any one industry. A single industry may be especially hard hit during a particular downturn.
4. When times are good and your customers are healthy, review any credit facilities that you offer your clients. When a downturn comes, accounts receivable will grow rapidly, increasing your risk of failure. Your customer’s customers’ problems quickly become your problems when they owe you money.
5. When times are good, work with your suppliers to reduce the amount of personal guarantees that you made. Check your lease to see if you are personally guaranteeing it. When you started out, you signed a guarantee of payment agreement that included you standing behind your business line of credit with your personal wealth to get delivery on credit. Now that you have been successful and times are good, they may allow you a limited credit line with only a corporate guarantee. In a recession, instead of “just” loosing losing your business, you may loose lose your family house without this change.
6. When times are good, align your employee benefits with the employee working hours or a fixed dollar amount you make available for the benefits. If you have to cut back on employee hours during a downturn, do the benefits costs also go down? If health insurance spikes up, is it your company’s obligation to pay more?
7. Developing your personal network is a big advantage during flush times. Networking loyalties develop customers that are not particularly price sensitive. Your networking clients justify using your business by believing they are getting superior service for this higher price. During a downturn, this all goes and most businesses switch to the low low-cost supplier. Be prepared to give these loyal clients your best price during bad times since they will most likely come back to you when things look better.
8. If the “sustainable competitive advantage” of your business is not being the low cost supplier of the basic product, you had better have a plan for getting there quickly. Customers will start doing without all of the bells and whistles on the products. Don’t tie your pricing structure to selling customers on high margin upgrades or more pricey models. They will start passing on these.
This article is provided by Stan Spector, author of “Baby Boomers’ Official Guide to Retirement Income”. Stan Spector is also a business broker in Rochester NY “Selling Family Businesses- Confidentially”
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When looking at savings account interest rates, it’s important to not only pay attention to the rates but at how sound the bank account really is. This means doing a little research on the financial stability of the bank in question. The same holds true when you’re looking at a bank’s CD rates. You should also always try to stay under the FDIC insured limit.