Nobody appreciates a slowdown, but it does serve the useful purpose of forcing
companies to get rid of excesses that inevitably build up during prosperous
times. Experts say the early 90's economic slump taught North American firms
how to compete.
The main reasons some enterprises handled the economic downswing better than
others was that they planned and prepared for it. Now is the time to take steps
to protect your business from a slower or stagnating economy.
1. Think Strategically.
Few entrepreneurs are fortune tellers, but every business owner can plan how to
respond to various economic scenarios. How would you handle the loss of one or
more of your major customers? How would you deal with a cash flow problem? How
would you do if one of your key suppliers went bankrupt? You need to have
realistic contingency plans to deal with these and other possibilities.
2. Reduce inventory.
Now is the time to get rid of the fat, without compromising the quality of your
product or service. One of the first items you may want to cut back is
inventory. The money freed up from excess inventory could be saving you daily
interest, if you're borrowing from a bank. There is also the risk of stored
materials becoming outdated or damaged. Ideally, you should order materials and
supplies only as you need them.
3. Reassess labor needs.
A big chunk of your controllable expenses probably goes toward labor.
Streamlining your labor needs can save money now, and avoid the turmoil that a
company faces if it's forced to lay off several employees at once. If you
require extra help, consider hiring people on a temporary or contract basis.
That way you'll pay for workers only when you need them.
4. Get staff on side.
Your staff may have the best ideas for saving time and money during and
economic slowdown. Encourage your employees to make recommendations. Reward
suggestions appropriately, and recognize all contributions, however small.
5. Negotiate payments.
Try to keep your own cash flow as free as possible. Don't pay bills until 40 -
60 days, unless you are offered a discount for early payment. You may also
consider volume buying, if the discounted price makes such purchases
worthwhile. Ask your long term, regular suppliers to give you extended payment
terms. Consolidate your money and make daily bank deposits, no matter how
small. You'll pay less operating loan interest, as well as earning the
confidence of your banker.
6. Investigate funding.
The hardest time to borrow money always seems to be when you need it most. Why
not negotiate a line of credit now, so that you will have some extra funding if
you need it? Also consider where you would turn if a bank manager suddenly
called in your loan. Other potential sources of funding may be your own
savings, family loans, shareholders, and government assistance.
7. Study the market.
Mass marketing is becoming a thing of the past. Companies that establish a
niche and serve it well are beating the competition. More than ever, it's vital
to know who your customers are, what they want in products and services, and
what they are willing and able to buy. You also want to know what your
competition is doing. If you have never done a market analysis for your
business, you have no time to waste. If you have completed one, it may be time
to update it in light of the changing economy.
8. Look for new opportunities.
Niche marketing doesn't mean you should put all your eggs in one basket. You
actually may want to ensure your business stays afloat even if one of your
products or services is hit by a slowdown. Another way to diversify is through
exports. The trend toward globalized markets is opening up the world to
entrepreneurs. If the domestic market for your goods is slowing, find out where
in the world your company's goods may be in great demand. If your company's
products are very specialized with a limited market, exporting is the way to
achieve economies of scale. Remember also that an economic decline always
brings new opportunities. During the early 90's recession, many large companies
reduced the number of products they offered and the markets they served. Smart
business managers picked up on this slack. They also took advantage of the
increased demand for contract and freelance work.
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