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Smart Start Up Strategies in a Recession – Part One

November 21, 2009 by Frank Goley, Business Consultant

Blog Sponsored by: ABC Business Consulting 

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Starting up or growing a young company during a Recession is certainly not impossibility, and in many ways it can be advantageous.  Also, whether or not the economy is doing well or not is no excuse for not conducting good business practices.  We could call this Blog, “Good Business Strategies in any Economy”.  The point is, if your company adopts solid Business Strategy, you can certainly weather and even profit in a recession while being positioned to grow exponentially during better economic times.

In this multi-part blog, I will discuss Success Factors and Strategies that will certainly help young or struggling companies, TODAY, in this “seemingly” tough economic environment.  I say “seemingly” because if you figure out how to survive or even profit a bit in this recession, you know you have a solid business model in place.  But isn’t that the case with every start up, young company or turnaround company, whether or not you are in recession?  My point?  Develop sound Business Strategies today, which may be a tough selling and growth environment, will be the mark of your success, not whether you are in an easy or hard selling situation.  Smart business is Smart Business and all boils down to sound Business Strategy which is well Planned, Marketed and Strategically Implemented.

Ok, enough of the soapbox, here’s some strategy you can use today!

Focus on Cash Flows, Sales & Profitability and Debt Burden:

Like I said, this is Business 101 stuff.  The basics.  But I bet many of you reading this Blog have fallen away from this Business Canon.  As I mentioned in the previous Blog on Budgeting & Cash Flows, planning your Budgets and clearly understanding, while realistically projecting, Cash Flows is the most important business management tool there is, when used in combination with a Solid Business Plan that puts a well developed Business Model (and processes and systems) into play with a Strategy.   

Manage Cash Flow and not run out of money.  Sounds easy, right?  Understanding how to use Budgets and Cash Flow Financials as a tool to manage your business on a daily, weekly, monthly and quarterly basis isn’t that tough, especially with today’s Financial Software – anyone can do it, with or without a Financial background and is completely necessary as an Entrepreneurial Tool.  A simple Flow Chart on why Cash Flow Management is so critical:

Product / Service Development => Marketing Plan => Strategic Plan => Company Budget => Sales Forecast =. Cash Flow Forecast =. Profitability => Debt Management

Inversely, the Profitability is managed by 1) Budget Process and 2) Cash Flow Management Process.  The above Flow Chart Process is very simplistic but the thing to remember is the relationship Cash Flow has to the Product / Service Development, Marketing, Budgeting, Sales Forecasting and Strategy before you can register Profitability as a Business.  This is why as a Business Consultant I constantly harp about a solid Business Plan Process which entails the above, plus a lot more.  If you are using Budgeting and Cash Flow Management as a tool, then you are incorporating all the important components of planning and executing solid Business Strategy, which when in a Recession, becomes all the more important.

Resource:  To understand more about Cash Flow, Budgets and Business Financials, please visit:  Cash Flow Management Strategy, ABC Comprehensive Business Planning Guide. 

Sales & Profitability:

Note, I did not say profits.  “Rather, focus on profitability of your product and service lines.  Profitability Analysis forces you to concentrate on the relationship between Sales and Expenses, as well as, Sales and Marketing.  What is the payoff for product “x” sales in terms of Company Expenses to make that happen, as well as, Marketing Expenses to make it happen – and not forgetting, the relationship of ancillary services to product “x”.  If you understand this Profitability relationship, then you understand Cash Flow Management, don’t you?  See where I am going with this?  Cash Flow relates to the Income Statement in a fundamental way.  Good Business Management / Good Business Strategy is a building block, relationship type of process.  A Good Business Plan Process instills this into a business.  Without Good Cash Flow Management, Sales & Profitability become increasingly esoteric and difficult to plan, manage and successfully obtain.

Resource:  Check out the ABC Article on Profit Maximization to more effectively manage your Company’s Profits.

Debt Burden:

Remember, this is a Building Block process, so Debt Burden can be effectively managed through A) Cash Flow & Budget Management and B) Sales & Profitability.  No Cash Flow, then no debt payment.  Not good!  Lack of Sales, and worse yet, lack of Profitability, will prevent securing any future debt.  There are a variety of Profitability financial ratios which are important to compute in relation to your Company Debt.  And guess what, they revolve around the Cash Flow and Income Statements, as well as, the Balance sheet.  I am not going to go into great detail about Financial Ratios, what they mean and how to use them because it is too boring for this blog.  Ok, humor folks!  For a comprehensive explanation of Financial Ratios please refer to the Financial Section of ABC’s Business Plan Guide.  Financial Ratios tell you how effectively you are managing your Cash Flow components and Profit (Income) Components, so that, you can service Debt Burden.  They also indicate how leveraged your Assets are currently.

Cash Flow Management (Budgeting) + Sales & Profitability Management = Effective Debt Burden Management.

For in depth information on Debt Management and Business Finance, please see ABC’s Biz Finance Section.

With this foundation built on Cash Flow, Sales & Profitability, and Debt Burden Management, the next Blog will explore some strategies which can work today toward a Successful Start Up in a Recession…..

We have a detailed Article on Recessionary Business Tactics that I recommend your reading as a follow up and continuation of this blog.  And while we are talking about Sound Business Strategies, you will find a multitude of ABC Business Success Articles in various areas of business that can be quite helpful for your company’s success.  Better yet, request our FREE (For a Limited Time) Business Success Guide for a comprehensive compendium of Business Success Strategies.

Need more help?  Please visit our Services Section for details on ABC’s Value Based, Business Success Packages.

Date:  Nov. 21, 2009

Sponsor Company:  ABC Business Consulting

Author:  ABC Chief Business Consultant

Subject:  Smart Start Up Strategies in a Recession – Part One

Posted in Business Recession Tactics.