Column: When hard times comeOver the course of the last months, I have had several SCORE clients being frustrated with what they can do during periods of economic downturns. On the other hand, it seems that some businesses appear doomed to extinction no matter what the economic conditions, for example, video stores and film manufacturers.
By: Dean Swanson, The Republican Eagle
Over the course of the last months, I have had several SCORE clients being frustrated with what they can do during periods of economic downturns. On the other hand, it seems that some businesses appear doomed to extinction no matter what the economic conditions, for example, video stores and film manufacturers.
But for most other business owners, the major concern is a bad business climate.
So what can a small business expect when the economy slips?
You can definitely expect accounts receivable to slow up (since other business won't be able to pay on time), and you should also expect to carry an excess in inventory (as sales slow).
My first suggestion for a client dealing with this concern is that economic downturns require immediate attention and quick responses. Diligent monitoring of your business numbers is important at all times, but vital in these cases.
Stay on top of the accounts receivables and inventories and try to keep sales and payroll within the proper parameters. For example, if your budgeting is based on payroll to be 12 percent of your budget, then adjust hours to stay within that range.
Here are a few things to consider during tough economic times:
• Reassess variable costs and discretionary expenses. When there's a downturn, you may have to go back to ground zero with budgeting and look at all your activities, everything that's going on, and everything that's planned. You need to take a hard look at variable expenses and how to minimize them.
• Minimize staffing expenses by outsourcing. Unfortunately, most small business owners are constrained by staffing. But to the extent possible, you may try outsourcing if the sales volume drops down.
Outsourcing can provide additional capacity without the problems of laying off people and the associated costs that go with that.
• Cut customers. This may sound counter-intuitive, but sometimes it helps to revisit your customer base, particularly those that are considerably past due. The last thing you need when tough times hit are material shortfalls in revenue.
• Reduce inventories. This may be a good time to look at marginal product areas and decide if you want to cut inventory.
• Ask for help. Don't be shy about asking others like particularly loyal employees, customers, or vendors-for help. Employees may be able to make concessions or offer suggestions that will help you get through the hard times. The same is true for customers and vendors who want you to survive.
• Consider discounts. Sometimes, the only way to keep the doors open is to cut fees and prices. I am not advising a permanent across-the-board cut, but consider offering a dramatic one-time cut on certain items, for example, lowering sandwich menu prices, or providing a one-time discount on dog shampoos.
• Seek short-term financing solutions. Credit card programs, with their flexibility and financing solutions, may provide a short-term funding solution for hard times. In addition, some card programs offer discounts and bonuses based on customer loyalty.
Dean L. Swanson is a volunteer SCORE mentor and district director for SCORE Minnesota.