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Small Business Recession Tactics

May 4, 2010 by Frank Goley, Business Consultant

We are in a pretty bad recession.  Should you open a new business?  Should you be in the small business capital market right now?  The simple answer is YES! This blog post gives you real-time situational advice on how to be successful during a tough economic times.

Survival Planning

Ed Hess, author of “So You Want to Start a Business?  8 Steps to Take Before Making the Leap”, says the first step is to “analyze why you’re in trouble, why you’re losing customers or why customers aren’t paying you fast enough.”  I can’t agree more.  You need to rework your Company’s Strategic Plan, Customer Plan and Supplier Plan to come up with a Survival Plan to cash-in on the opportunities a Recession provides.   

So how can you increase or maintain Cash Flow in a down Economy?

1.     Diversification:  Dan Leader, Owner of Bread Alone, a wholesale and retail bakery with three outlets, used diversification to maintain his $7 Million in Annual Revenue.  One third of the business is targeted on Retail Stores, one third on wholesale distributors and the other third concentrates on Mail Order and On-line Sales.  This way if one sector is hit hard in an economic downturn, the business has two other Sectors to pick up the slack.

2.     Contingency Plans:  Just like you have an Emergency Fund in any good Personal Financial Plan, you should establish an Emergency Fund for your Business.  Mr. Dennis Ceru, adjunct professor, Entrepreneurship and Business Strategy, Babson College, recommends planning for “rainy days”, putting aside 3 to 6 months operating capital and salary.  Include in your Business and Strategic Planning an Emergency Plan for cutting costs.  Another option during a down economic period is to send out invoices the day of a sale with cash discounts for early payment, say within a week.  Waiting 30 days to send out invoices, during tight times, can be a strain on cash flows.  Managing Cash during a downturn is crucial so your Budgeting Process in your Company’s Strategic Plan is vital.  Other strategies could involve leasing verses buying or hire part-time labor verses full time employees.  You just need to survive until things turn around, and you can implement recession strategies.

Cost Management

Cost and Cash Management is crucial during tough economic times.  Here are some great Recession strategies to employ:

1.     Expand your business into profitable areas without needing additional capital:  Dan Leader of Bread Alone, a New York wholesale and retail bakery, sets aside one to two days a week to make sales calls on new customers that have multiple locations, which can yield $100,000 in annual business.  Mr. Leader presented new product offerings to Whole Foods, Zabars and the like which generated a surge in large orders.

2.     Weed out Costly Customers:  Analyze your Customers’ profitability, create a “perfect customer” profile and concentrate on that customer type.  This will help you to be more profitable on a per customer basis, which is much less of a strain on Company cash flows during hard economic times.  Concentrate on higher net profits per customer verses high volume sales with less profitable customers.

3.     Examine your Technology Costs: Technology is key to running an efficient business but make sure you only have what you need for a good price during recessionary periods.  Heavy technology costs are hard to justify when you are fighting to retain and gain customers.  After analyzing the effectiveness and necessity of available technology, negotiating the terms of delivering the technology which can be met and sustained by your company.  Low cost per acquisition unit, high unit profitability and platform flexibility are key factors to keep in mind when assessing your Technology Plan.

4.     Poor Employee Performance during tough economic times can’t be ignored.  Ensure you have a suitable Performance and Control Mechanisms in place to proactively manage your human assets.

5.     On the flip side, retain your talented people even though they may be expensive.  Experience prevents mistakes, which can be very costly.  Your most expensive employees to hold on to should be your most productive ones.  They can pick up the slack during company cut-backs.

6.     Analyze the payoff of your Marketing Dollars.  What specific strategies are paying off?  At what profitability?  What is the ratio between marketing dollars spent and the resulting unit / customer profitability?  Exploit your high profitability areas and refrain from generalized Marketing Strategies.  Analyze your Marketing Plan to determine the best target, niche markets and the most profitable methods of selling to those targets.

7.     To retain those highly talented, skilled, experienced people in recessionary times, you must continue to offer good benefits.  Don’t cut your benefits to save on costs and expect your best people to stick with you when things are tough.

Chris Pentilla’s Article, “Employee Benefits in Today’s Economy”, in the January ’09 Entrepreneur Magazine, gave good tips in retaining key employees:

1.     Provide Breakfast at Staff meetings

2.     Lunchtime training Sessions

3.     Presenting employees CASH bonuses for meeting company goals

4.     Employee cost-shared in-house day care

5.     Matching Employee 401(K) Contributions even during business slow periods

6.     Company principals tell the employees the Truth, sharing information about the Company’s Budget so Employees understand how they can positively affect the bottom-line.

7.     During tough economic times a business owner may have to scale back perks but do it with the involvement of company employees

8.     Understanding how employees will react to changes in perks or benefits is key to a good Company Communications Plan

9.     Offer Discount programs on a range of consumer goods for employees to offset benefit cuts the company has to make, such as having to increase the Co-pay on an Insurance Policy

10.  Make a strong link between Perks and Performance:  Work flexible hours; work-life balance initiatives; work at home, telecommute; and giving more responsibilities to a high achiever are some ways a Company can offer performers unique perks which they have earned.

11.  Mentoring and training programs

12.  Recognizing Volunteer work and endorse a company-wide volunteer event or cause

13.  Strong ties with the Community

14.  Gas discount cards

Refrain from Across the Board Cost Cutting

Across the board Cost Cutting is a desperate measure.  Effective Cost Management should be a day to day tool you employ in your Company’s operations.  When times get tough, the Cost Management System you have in place will pay off large dividends, while making you very profitable during boom times.  Cost Management should be an integral part of your Company’s Strategic Plan, Product Development Plan, Marketing Analysis and Strategic Plans. 

With effective Survival and Cost Management Plans and Systems in place, your Company will be well situated to cash in on the limited availability of Business Capital in the Lending Marketplace.  Tough economic circumstances really tighten lenders’ purse strings, so it is important to concentrate on Funding Strategies which can be successful in such conditions, which is where I will pick up in my next blog post.

Posted in Business Recession Tactics.