Surviving in an Economic Downturn
The belief that small businesses fare poorly in economic slowdowns is a common misconception. Solidly run small businesses actually hold their own during downturns. While we all like to believe our businesses fit the definition of solidly run, lets take a look at what are some commonly cited best practices for all businesses to be following during a time of economic downturn.
Revisit Your Business Plan
The number one recommendation, across the board, is to reexamine your business plan. Your business plan should be the working base for your company. Have you strayed from it in any way? Does it need revision in light of new information? Should you be considering whole new directions that are not included in it? Sit down and read it from the perspective of someone about to invest in your business and make any revisions that seem appropriate. You may even identify additional information you need to know in order to make decisions about the future of the company.
Seek Supporters and Advisors
If ever there is a time to network, this is it. Many companies set up advisory boards that include a wide spectrum of professional expertise that they can draw on for advice. Such board members often are attorneys, certified public accountants, civic club leaders, owners, or managers of businesses similar to yours or whom you do business with, and retired executives.
The latest jargon for these types of boards is Power Circles. An apt name because the members should be power connections for you knowledgeable about the environment in which you do business and able to connect you with the information you need to make good decisions. The purpose of the board is to offer you objectivity. They should be people you can be truthful with and who will keep your disclosures confidential. Most groups like this discuss specific business problems you have, using the meeting to brainstorm possible solutions.
If you dont belong to civic and professional organizations, do it. 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.
Make Customer Satisfaction Your Priority
Your customers are your lifeblood 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 services you offer. Change those that you can.
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 telephone line would speed the service time. Do whatever you need to do to keep your current customers loyal and to position yourself to win new customers.
Expand Relationships with Existing Clients
Given that your customers are satisfied, they should want to do more business with you. Find out if there are ways you can expand what you do for them, perhaps by offering more products or services or fulfilling other needs that they have. Long-term deals 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 upfront for a contracted set of services. Cash upfront is particularly attractive, because it makes you look good on paper and can allow you to lock in favorable financing from financial institutions.
In a downturn one of the first places many businesses cut expenses is 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.
Seek New Business Opportunities
A downturn sounds like a terrible time to diversify, doesnt 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 dont 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.
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.
Diversify Your 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 on which customers your business attracts.
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, 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 him or her of any company developments. If you face a tight situation, having your bankers 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 also are most likely hurting. If you can find more efficient methods that allow you to cut costs, not only will you retain your customers, you may attract others.
Watch for Signs and Act 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 customers by approaching them proactively with the view of being there to help them through their own hard times.
Mobilize Your People to Save Jobs
Economic downturns are scary times for employees. Many firms cut personnel and add to the workload of the remaining employees, so involve your team 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 your teams 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, ritual for the employees to discover each morning what the CEO had noted from the day before.
Whether or not the economy is in a recession, any of these methods can strengthen your organization and your bottom line. This is what makes a solidly run business. It means returning to the roots of your business and making certain that every aspect is healthy. All of these principles are worth revisiting at least annually, in good or bad times.
Reprinted with permission by Small Business Notes, copyright 2009. For more information, visit www.smallbusinessnotes.com.