Beating the crunch
by D.J. Minguillan

Operating or managing a small business often leaves little time to keep track of national (even regional) economic indicators that might affect your industry and your specific operation. However, your profitability is directly affected by conditions such as interest rates, inflation, gross national product, stock prices and consumer confidence; even your relationships with vendors, customers and employees.

Entrepreneurs are hardest hit during periods of economic decline, whether widespread or cyclical, for a particular type of business. They are most likely to bear the burn. Yet the fact that conditions constantly change opens up opportunities for resourceful firms to outsmart larger competitors who, during a downturn, carry on business as usual or are unable to adapt quickly -- except to fire employees.

CREATIVE SMALL FIRMS CAN:

Expand their market share by taking it away from competitors unable to adjust to shifting market conditions.

Sustain a strong cash stream throughout the downturn, while other companies are having liquidity difficulties.

Develop into a leaner, more cost-effective and more efficient operation. This positions the company to perform well when the market improves.

The challenge is in being aggressive and imaginative. Entrepreneurs who survive and even prosper during hard times must be able to look beyond the present, to overcome the constraints of tradition, to see the firm from a new perspective and to do business differently.

Following are recommendations for small business owners and managers to pursue during an economic crunch:

Manage your inventories well.

Inventory is the heart of a business. Keep a watchful eye on your inventories. During a slowdown, there is an imbalance between slumping retail sales and bloated inventories.

Don’t be saddled with leftover merchandise that tie up your cash flow. Convert inventories into cash. This way, if sales are slow, cash is not locked to unproductive assets.

Monitor cash flow.

Conscientiously monitor your cash flow to ensure that expenses and planned expenditures are in line with accounts receivable. Ensure that your financial statements provide information that is accurate and relevant. Cash flow statements are excellent yardsticks in projecting where your business will be three months in advance.

Suppliers, landlords and contractors are often open to negotiation on contract prices or short-term reductions. They even consider ex-deal trading of credits instead of cash. Prompt payment results in discounts from suppliers. Don’t pay checks for no discount bills before they’re due.

If the scenario of cash constraint has surfaced, it pays to request for payment extension from your creditors to pay your current bills. Chances are they will be cooperative when that request is done before the due date. When your payment history is solid, credit managers are more receptive to your assurance that future bills will be paid on time.

Separate “nice to do” from “have to do."

Do away with unnecessary expenses as much as possible. Ask yourself if an activity is necessary. If not, don’t do it. Cut personal spending. Simple solutions such as brown bag lunches and a recycle mind-set can make a difference.

Reduce or stretch out debt and build capital reserves.

Watch the credit value of your clients, even “bread and butter” accounts. Keep close customer relations during economic downturns. Checking to see how they are doing not only helps avoid unpleasant surprises but could also lead to new opportunities.

A sound business practice would be to keep in touch with your customers; guard your territory to keep off eager competitors. Setting regular sales calls and preferably face-to-face meetings provide and excellent opportunity to pacify unhappy customers and win back lost ones.

Offer pre-payment incentives like discounts on long-term buys. Try to lock up long-term contracts.

Get aggressive with collections.

According to the partner of a consulting firm, “When business is good, companies tend to become lazy about collecting receivables. This can prove dangerous in a recession.” Being tough with customers may be unpleasant, but it’s an important safeguard against the effects of a prolonged economic slowdown

Reduce capital spending.

Delay major purchase or expansion plans that have a long Return of Investment (ROI) while making sure you are capable of filling orders once the economy picks up.

Strengthen banking relationships.

This includes letting lenders know the company’s financial standing. Banks are looking for business to boost their income, but are also trying to minimize risk, so they are careful about what kind of loans they undertake.

Most experts agree, however, that seeking additional credit during a recession is not advisable.

Look for opportunities to reduce rented space.

If you have extra space, it may be a good time to sublet that space; thus reducing overhead and generating extra income. With this in mind, consolidate your operations and remove unused equipment; that much space is simply draining the bottom line.

Be prudently aggressive in the marketplace.

Be proactive in seeking out new business, like add a salesperson or two or provide extra service to give you an edge over competition. Going the extra mile for a customer always create a favorable impression for the company.

Don’t skimp on service and quality by being understaffed.

Options include freelancers, consultants and part-time employees.

Build your customer base.

Induce current customers to raise revenues. The importance of good service cannot be overstressed. A customer’s perception of service is fixed in terms of time, as studies have indicated.

Conduct training during slack periods.

Invest in low-cost, on-the-job instruction; upgrade trade, office skills and supervision techniques.

Get employees involved in policy choices.

Let them also have a voice in policy tactics and implementation. Layoffs can be averted when employees take a lead role in designing the program for coping with the crunch the company is facing. Shortened hours, job reassignments, job sharing and other alternatives may be taken into consideration.

Meet with your staff regularly to exchange ideas on boosting productivity and other issues. Create an incentive for good suggestions, and foster a team spirit for survival. Encouraging employees to contribute their expertise instead of just following orders will help companies manage lean times when challenges to business success are greatest.

While it is true that economic slowdown is challenging, businesses don’t have to slash their profit and compress their market share. Ingenious entrepreneurs can still get hold of available opportunities and strategize the groundwork for tomorrow’s success.

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