Surviving the RecessionA Business Owner’s Guide

Al Walsh

Walsh Enterprises Business & Financial AdvisorsHuntington Beach, California USA(714) 465-2749 http://www.awalsh.us walshal1@aol.com

• Here we are, deep in the recession. Just about everyone’s feeling the pinch one way or another. You’ve probably already taken steps to shore up your business, but we may have a long way to go before things turn around; and there’s no time like the present to prepare.

• The single biggest key to survival is to Think – not letting events push you into panic-reaction mode. If you’re already at that nasty place, then there’s all the more reason to put on your thinking cap and work out a solution before it’s too late.

• For sake of conversation, I’m going to address my comments to businesses that were already in existence and profitable before the recession hit. Assessing new businesses in this environment can be the topic of another whole presentation.

• So here you are. The business was doing okay, and now you’re faced with a declining situation and a whole new set of challenges.

• If you’re days or weeks away from closing the doors, it may be too late; but you may as well give it a go to save the business. You need to do everything you can to bring cash in and reduce cash outflows. Don’t be shy, timid, or polite about it. Your business survival is at stake. Wheel and deal. Everything is negotiable. Be creative. If you’re afraid of pissing people off, think how pissed off they’ll be when you shut the doors and stop paying altogether! Pretend you’re a turnaround expert who’s been brought in from outside to save the business; who’s not emotionally-involved. I’ve been in that role twice. There are things that can be done which the average business owner has difficulty facing emotionally. If you feel uncomfortable with something, consider how good you’ll feel when you save the business; and how crummy you’ll feel if you don’t.

• Okay, so you’ve managed to scratch your way back to at least a break-even point. Now’s the time to sit back, assess your business carefully, and set your new course. This is the point where you business owners who aren’t at the panic stage yet also come in.

• One of the critical elements in assessing your business is to realize that it’s like a living being. It’s made up of a series of components that all play into the health of the whole. It’s complex. It constantly interfaces with external forces in a variety of ways; many out of your control. Like a living being, your business needs sustenance, and stimulation. Like a human, it must periodically reinvent itself; adjusting to changing external factors. Changes to any part flow through the whole in sometimes unpredictable ways.

• When things get tight, most business leaders automatically go to the expense line and start cutting. Some cuts are probably appropriate, but I suggest that you take a look at the revenue line first. The whole purpose of your business (assuming it’s a for-profit) is to sell, one way or another. If your financial health is deteriorating, it’s most likely because sales are down. You need to take a fresh look at that topic.

• Are your products or services still viable and in demand? Is there some new product or service you could introduce without too much trouble that would do better? Is your marketing model and strategy still valid? Has a clever competitor found a way of cutting into your business base? Is your advertising approach still effective? Are you delivering on-time and to specification? Is your supply chain solid?

• You built a staff and infrastructure to support your prior sales base. Before you go cutting into those resources, perhaps there’s something you can do to get sales back where they belong.

• Sure, you face these questions every day, but sometimes it’s necessary to step back and take the proverbial “breath of fresh air”; assessing the questions from a distance where you can see the “forest for the trees”.

• If necessary, go lock yourself in a hotel room so you can have privacy and time to think. If you have someone on staff who’s critical to the process, take them with you. Leave the phone at the office. The business will probably survive for a short time without you, and you’ll have time & space to think.

• Leave your ego at the door, and take a fresh objective look at what you’re doing & how.

• Be sure to consider you competition. If they’re doing something smarter, emulate them or figure out a way to do better.

• Okay, you’ve done everything you can to boost sales. Now it’s time to take a look at that expense line.

• The first place most cost-cutters go is payroll. That may be appropriate, but be careful. You don’t want to lose resources who will be critical to recovery when the economy improves. And let’s face it, no one wants to take peoples’ jobs away in the middle of an economic mess like the one we’re in. Take a fresh look at the way you’re doing business, and the people you’ve got doing it.

• We all tend to get a little loose when things are going well. Maybe you’ve been carrying a couple of employees who were marginal performers during the good times. These are the people who should go first. If they weren’t carrying their weight in good times, you definitely don’t want them now. You need people who were good in the first place, and are now willing to give a little extra.

• You’ll also be tempted to cut benefits. Be careful. You don’t want to cut to the point where employees are thinking more about their personal welfare than their work while on the job. Plus, if you cut too much they’ll bail out on you when the economy improves.

• Sacrifices are sometimes necessary. To the best of your ability, try to apply them across-the-board. People don’t want to feel as if they’re being singled-out.

• Okay, now let’s talk about other cost-cutting measures. First, look for obvious opportunities. For instance, are your office supplies stocking the home offices and craft rooms of your employees? Are your shop supplies stocking your employees’ garages?

• Getting back to my earlier theme, we all tend to get a little loose during good times. If there are costs that are pure waste, or which can be eliminated without cutting into your organization’s ability to function - get rid of them.

• One area that business owners are often slow to consider is slow-moving inventory. Have you got stock that’s been sitting around taking up space? That’s like cash thrown out the window. Get rid of it. Sell it for the most that you can get; even if it’s only for dimes on the dollar. Any return is better than no return. The cash can support the purchase and sale of fast-moving items. Even if it’s worthless, you don’t want to keep eating hidden costs to handle and store it.

• After payroll, most business leaders turn to admin for cost-cutting. If business is down, you probably need less admin; but be careful - because even though the admin functions don’t directly generate sales & profits, they are still necessary and critical to your success. Plus, maybe some of your admin really is critical to selling & profits. Maybe your inside sales force is part of admin. Maybe the people who handle returns, and deal daily with your customers, are part of admin. Maybe shipping is part of admin. Accounting isn’t a profit-center, but they keep you apprised of your financial standing, collect cash, and help control costs; among other things. Don’t gut admin for short-term gain at the expense of long-term health. Use a “scalpel” not an “axe”.

• Okay, so now you’re turning your mind toward costs that are more fundamental to the conduct of your business; manufacturing & selling costs, etc. Again, the “scalpel” vs “axe” approach is appropriate; especially since the functions these costs pertain to fall at the heart of your business.

• Now’s the time to take a look at unproductive resources that could be converted into productive ones. Got old equipment collecting dust in a corner that could be converted to cash?

• It’s also time to look at modernization steps that are economically viable. If you can purchase a new machine that will replace two old ones, cut costs, and pay for itself in six months, you should be looking into it. If capital restrictions are in the way, look into leasing. It’s only a little more expensive and may still be economically viable.

• What about your facilities? Can you consolidate? Are cheaper facilities available (after all, the commercial R.E. market is weak)?

• Is there a cheaper and more effective way to perform some process that you’ve been putting off implementing?

• Take a fresh look at how you’re doing things – from top to bottom – and look for opportunities.

• Now let’s revisit the sales/revenue and cost issues in a different way, via cash flow. You want every penny of your company’s assets working as efficiently and rapidly as possible to generate profits. You want your inventory turns as high as possible. You want to operate “lean & mean”, as the old saying goes.

• Any asset that’s not doing it’s best to generate profits needs to be converted into something more productive.

• There are many more thoughts I could share, but this covers the basics. The purpose of this presentation is to encourage you in your own thinking. Take the time, do it right, survive, and prosper. Repeat the process periodically; because very little stays the same for long.

• Instill a similar mental discipline in your employees. Remind them why the business exists, and that their role is to work together in achieving the business goals; not just perform tasks.

Good Luck

Al Walsh