Knowledge Base - Responding To The Economy
How to Come Out On Top in a Down Economy
In a down economy Cash is King and you need to operate accordingly. Keep in mind that in down markets risk increases dramatically as you may not be able to cover up mistakes by growing revenue.
Here are some additional thoughts:
- React to current conditions not conditions you wish existed.
- Adhere to your credit policies. Don’t pick up your competitors credit problems.
- Keep the calculation of your cash break-even up to date and manage your business with that in mind.
- Make use of an interactive financial model to test what if scenarios.
- If your cash position allows, consider investing in activities like marketing and engineering that will better position you for the recovery.
- Use updated forecasts to drive staffing levels.
- Use the tight job market to upgrade your staff.
- Knowing profitability by customer, product or segment allows you to focus on areas where you enjoy better margins.
- Know your costs so that you can make strategic pricing decisions.
- Focus on segments of your business that are hurt the least by current conditions.
- Focus on customer retention and reactivating former customers.
- Evaluate why customers are not buying and address any factors you can control like offering a lower cost, no frills alternative or extending payment terms.
- Make sure you stay close to your key accounts. Your competitors will be gunning for them.
- Reposition your message to deal with current realities, i.e. promote your equipment rebuilding services not just new equipment sales.
- Review advertising and marketing expenditures to ensure they are focused in areas that will provide the greatest return for the money.
- Be alert to the impact of decreasing order size on your fixed costs per order.
- Suppliers are looking for volume. Now may be a good time to consolidate and negotiate long term supply contracts.
- Keep up communications with your lender. Make sure you don’t give them any surprises.
- Review your insurance policies and adjust sales and payroll estimates to reflect current realities.
- Require an extra level of approval for all discretionary purchases to ensure they are appropriate given current conditions.
- Check to see if you may be able to realign the frequency of various service and supply contracts with current activity levels. Consider, uniforms, rugs, shop rags, equipment maintenance, waste removal, etc.
- Work off inventory levels to conserve cash. $0.60 on a dollar today is worth more than “maybe“ getting full value down the road.
- Shift costs you can’t control to your customer. For example change prepaid freight to FOB Plant.
- Keep an eye on your competitors and be prepared to move quickly if they falter.
- Take steps to speed up your financial information. Use estimates if necessary to improve the timeliness of your numbers. Use this information to quickly respond to changing conditions.
- Make use of trusted outsiders to help ensure you remain objective.
- If you get into a jam, honest communication is key. If you make promises, keep them!
- Keep a few vendors current so you can use them for credit references.
- Evaluate the necessity of travel. Determine if you would gain cost savings without losing effectiveness by using technology like conference calls, video conferencing, or webinars.
- Evaluate the feasibility of temporarily reducing or eliminating your 401k match.
- Encourage use of vacation time now so employees are available when things pick up.
- To keep your good employee base intact, consider a reduced work week for everyone or rolling layoffs of one week off one week on.
- Check to see if your landlord has any flexibility to defer a portion of your rent until things pick up.
Finally, stay positive. You can’t see where you are going if your head is down. People with negative attitudes tend to miss opportunities. The pendulum always swings back.
Although the above are practices that should really be followed in any kind of economy, they are some of the steps you can take to cushion the effects of difficult economic conditions.