Defend your bottom line during tough economic times

The signs are mounting that the United States has entered a recession — is entering a recession, or else will very soon.
I see plenty of cues in recent business news indicating that lots of business decision-makers are acting as if we’re in a recession already and rightfully so, especially with statistics such as these:

In December, the US unemployment rate rose to a two year high of 5.0%, the worst since 2005. That increase was also the largest one month increase since April of 1995. A scant 18,000 jobs were added to payrolls in December, per the US Department of Labor. 2007 was the worst year for US job creation since 2003.

During periods of economic decline, small businesses and entrepreneurs are more likely to bear the brunt. Yet the fact that conditions are changing also opens up opportunities for resourceful companies to outsmart larger competitors who, during a downturn, carry on business as usual or are unable to adapt quickly — except to layoff employees and cut costs in areas that actually end up hurting the company in the long term.

The key to success lies in being aggressive and innovative. Managers and entrepreneurs who survive and even prosper during hard times must be able to look beyond the present, to overcome the constraints of tradition and approach the business from new perspective. Here are a few strategies to focus on:

• Monitor your cash flow very diligently, and forecast it monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Make sure your financial statements provide information that is timely, relevant and accurate.

• Eliminate nonessential expenses as much as possible.

• Take a closer look at capital spending. Consider delaying both the purchase of high ticket items and expansion plans that take a long time to pay off.

• Actively seek out new business. The importance of good service cannot be overstressed — especially as consumer buying power or willingness to spend is lessened during tough economic times.

• Re-examine your marketing mix to ensure it is the most cost effective.

• Get employees involved in policy choices as well as tactics and implementation that can help decrease costs. Meet with staff regularly to exchange ideas on boosting productivity and other issues. Create an incentive for good suggestions and foster a team spirit for survival.

• Develop new marketing techniques to gain market share from competitors unable to adjust to shifting market conditions.

• Maintain a strong cash stream throughout the downturn, in contrast to other companies that may have liquidity problems.

• Become a leaner, more cost-effective and more efficient operation, better positioned to do well when the market improves.

While economic downturns are difficult and increase the obstacles a business faces, it is not always a requirement that companies have to slash earnings and compress market share. That recourse occurs when companies that take too long to realize what must be done, or resist change. Resourceful business leaders capture all available opportunities and take steps during tough times to lay the groundwork for tomorrow’s prosperity.

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