From the Executive Director

Juan A. Navejar Jr.

Over the last couple of weeks we have seen an economic downslide in our area with layoffs from various oil and gas companies. With the economic downturn based on the price of barrel of oil, our locals have been scratching their heads as to where our future is headed.
For our small businesses that rely on locals to keep them afloat it can be hard to predict what will be next for them.  Running or managing a small business often leaves little time to keep track of national, and even regional, economic indicators that might affect your industry and your specific operation. Yet conditions such as interest rates, inflation, gross national product, stock prices and consumer confidence have direct impact on your profitability and on relationships with vendors, customers and even employees.
Yet the fact that conditions are changing 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.
Here are a few tips that can help you ride the tide to weather the storm:
1. Watch your inventories carefully, but don't hold them down so tight that you'll lose
sales. Typically during a slowdown, there is an imbalance between slumping retail sales and
bloated inventories – don’t be saddled with leftover merchandise that ties up your cash flow.
One possibility is converting inventories into cash. If your business traditionally stocks 250
units of each of its slowest-moving products, consider cutting that number to 100 each. Monitor the results, keeping an eye out for those products that can tolerate even leaner inventories or that should be eliminated from your stock. This way if sales nosedive, less of your cash is locked into unproductive assets.
2. Taking that point further, 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. Cash flow statements are superior in this regard to income statements and balance sheets. Be able to project where you will stand three months in advance.
Negotiate with suppliers, contractors and landlords for better prices or short-term reductions, and even consider trading goods and services on a barter exchange for credits instead of for cash. Take advantage of supplier discounts for prompt payment, and don't pay checks for no-discount bills before they're due.If the cash bind has already surfaced, talk to creditors before the bills are past due to persuade them to extend payments of your current bills. Your chances of getting their cooperation will lessen if you wait until they send collection memos. Keep in mind that suppliers' credit managers will be more receptive if your payment history is a solid one, and you can assure them future bills will be paid on time.
3. Separate the “nice to do” from the “have to do,” and eliminate nonessential expenses as much as possible. Ask yourself, is that activity necessary? If not, don't do it. Also consider cutting personal spending. Simple solutions such as brown bag lunches and car pooling can make a difference.
4. Reduce or stretch out debt, and build up your capital reserves. Watch the creditworthiness of your customers, even bread and butter accounts. Remaining close to existing customers, and checking to see how they are getting on during the economic downturn, not only helps avoid unpleasant surprises but could also lead to new opportunities. Besides, when sales are sluggish, keeping in touch with customers (always a sound business practice) becomes vital to head off eager competitors. If appropriate, encourage sales people to call on every customer on a regular basis, and set aside some of your own time to do the same. Frequent face-to-face meetings with your client base provides an excellent opportunity – probably your only one -- to pacify disgruntled customers and win back lost ones.Try to lock up long-term contracts with your most important customers at anything approaching acceptable terms. Offer prepayment incentives, for example, and discounts on long-term buys.
5. Get aggressive with collections. According to the partner of a consulting firm, "when
business is good, companies tend to become lazy about collecting on receivables. This can prove dangerous in a recession." Assume that the average collection period for your industry is 45 days, but your company is at 51 days. After bringing that collection period down to the industry average, keep working to get it down to 40 days. Being tough with customers may be unpleasant, but it's an important safeguard against the effects of a prolonged economic
slowdown.
6. In a related vein, look hard at capital spending. Consider delaying both the purchase of high ticket items and expansion plans that take a long time to pay off. At the same time, make sure you have enough capacity to start filling orders again when the economy stabilizes.
7. Strengthen your banking relationships, which includes letting lenders know the
company's financial position. 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.
8. Look for opportunities to reduce rented space. If, similar to many companies, you acquired space in anticipation of staff expansion that ultimately proved unnecessary, this may be a good time to sublet that space -- thus reducing overhead and generating extra income. With this in mind, commit yourself to subleasing a set percentage of your company's space. By consolidating operations and removing unused equipment, you may find that much of the space you thought you had to have was simply draining the bottom line.
9. Now is the time to be prudently aggressive in the marketplace. Actively seek out new
business, and perhaps add a salesperson or two or an extra service to give you an edge over competition.
10. Similarly, don't skimp on service and quality by being understaffed. Options include
freelancers, consultants and part-time employees. One advantage of a slowdown is that hiring gets easier because there are more candidates from which to choose due to layoffs and other cutbacks.
11. In strategizing how to build your customer base and induce current customers to raise revenues, the importance of good service cannot be overstressed -- especially as their buying power or willingness to spend is lessened during tough economic times. Studies show that perception of service is fixed primarily in terms of time in a customer's mind. Three examples are: waiting time to obtain service; reaction time to deliver service; and length of time of the service. In banks or stores, or phoning in orders or for information, prospective customers will walk out or hang up if their time perception is strained. According to management consultant Donald Blumberg, author of Managing Service as a Strategic Profit Center, customers will temper their time demands when they see store employees busy helping other customers. But they will not be so tolerant when clerks are chatting with one
another or on the phone while waiting customers are ignored. An informal, friendly attitude by owner-managers is key to a happy workplace, with emphasis clearly placed on the important role all employees play in meeting customer needs for attentive, timely service.
12. Historically, many businesses reduce advertising and promotional expenditures rather than slash fixed costs during hard times. However, studies have shown that those maintaining or increasing ad outlays during slowdowns wind up outselling rivals who cut back. Savvy marketers can boost sales and market share, even if the industry in which they compete is in a slump, by focusing on short-term tactical techniques such as sales and price promotions (including cents-off coupons and rebates), and tailoring advertising in response to the shaky economic climate.
13. Another mistake during recessionary times is to reduce training budgets. Training can best be conducted during slack periods -- especially low-cost, on-the-job instruction and
broadened skill acquisition. Also, local community colleges offer a number of free classes that teach and upgrade trade and office skills and supervision techniques.
14. Get employees involved in policy choices as well as tactics and implementation -- asking, for example, if costs can be cut 15 percent without layoffs. If layoffs or a significant reduction in work hours are unavoidable, let employees take a lead role in designing the program. Shortened hours, job reassignments, job sharing and other alternatives may surface. 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. Remember that employees need to feel they are important to your company, and that their work is challenging them up to their full capabilities. "Do what I tell you" management styles need to be replaced, because small businesses whose owner or managers are "the whole show" can definitely benefit by encouraging workers on all levels to contribute their expertise instead of just following orders. This is especially true during lean times when challenges to business success are greatest. While economic downturns are admittedly difficult, and increase the obstacles small businesses face in trying to survive and grow, it is not axiomatic that companies have to slash earnings and compress market share. That recourse befalls firms that take too long to realize what must be done, or which resist change. Resourceful entrepreneurs capture the available opportunities, and take steps during today's hard times to lay the groundwork for tomorrow’s prosperity. The next couple of months will be trying times for us all but using some of these tips can help you get a hand on our current situation.
 
*Excerpted with permission from "Small Business Success" magazine, Volume 4, produced by
Pacific Bell Directory in partnership with the U.S. Small Business Administration and the Partners for Small Business Excellence.