| When stock prices move erratically,
economic indicators weaken, or housing prices fall, small business owners get nervous. As
a result we experience many sleepless nights because we have no idea what tomorrow will
bring in terms of orders, or more importantly, payment for our goods and services.
We begin to believe that our best customers, who get behind
in their payments to us, might fall further behind than they’ll admit. We wonder
whether their promises to pay are empty. And, we worry about meeting payroll in the coming
weeks.
What does that mean for the average small business owner?
On the surface, it usually means we must hunker down as if
the business has just seen its last sale. On a deeper level, many small businesses (dare I
say, most?) are, even in good times, barely getting by.
The truth is, small businesses tend to be at the bottom of
the economic food chain. Therefore, when the economy slips ever so slightly, it swallows
many good businesses that were thriving months earlier. And then, in a chain reaction,
vendor after customer after vendor fails.
But a small business can ride out a downturn more easily if
it practices a few time-tested strategies that will strengthen any business, in good times
or bad.
5 Proven Strategies to Help You Protect and Grow Your
Business During an Economic Downturn
1) Don’t buy more raw materials inventory than you
need.
In fact, reducing your inventory stores is an excellent
strategy in any economic condition.
Return inventory that you don’t need. Sell, for less
than you paid if necessary, any inventory that you don’t need and can’t return.
Cash in the bank is more useful than worthless parts taking up space in your facility.
2) Eliminate obsolete finished-goods inventory that
won’t sell for what it cost you to produce.
Some owners think that dealing with obsolete inventory
takes valuable time away from their business operations. On the contrary, keeping obsolete
inventory is a huge waste. If it is truly obsolete, then its value is not what it cost
you. Its value is $0. When your CPA discovers that your inventory is obsolete, he has an
obligation to write it off, which may hit your bottom line hard.
While its value is zero, you may think that it doesn’t
cost you anything just sitting there in the warehouse. But it’s actually costing you
big! It wastes precious warehouse space and utilities. It wastes time for your workers to
move around it. And it costs to count it at physical inventory time.
Reduce the extent of the write-off and the worker
inefficiency by continuously selling off inventory that becomes obsolete. You will get
quick cash, free up your warehouse space, and take less of a hit at inventory-counting
time.
3) Don’t build up finished-goods inventory.
One of the biggest mistakes that small business owners make
is to ‘get ready for more sales’ by continuing to manufacture, at the same high
rate, product for sale when it is selling more slowly. This mistake is a cash flow sponge
that can soak up all of your cash reserves at a time when you need them the most.
4) Don’t try to ride it out with your employees.
When your labor force runs out of work, send them home
early. Give them their choice of two days off in the next month, without pay. When you
trim your labor base early in a downturn, it is more likely that your employees will be
able to find other work. Your business will remain stronger, and may be able to rehire
them sooner. You must remain as efficient as possible to protect your family and be able
to provide for the families of the workers whom you retain.
5) Send outdated invoices that your customers won’t
pay, to a collection agency.
Getting half now is better than nothing later when your
customers have filed for protection. Audit your receivables. Make sure that all of your
customers have each invoice they owe you and that your collections department has some
leeway to aggressively collect your money. The further down that a shaky economy takes us,
the more difficult it is to collect.
The best part is that once you’ve ridden out a
downturn and become accustomed to these management behaviors, you can continue to do
business this way, and you’ll see higher profits when times are good. |
