Steering Your Business Through a Slowdown
Whether or not your business is experiencing slowing sales and narrowing margins, now may be a good time to take a comprehensive look at your current strategies and business practices.
Cash is king, especially when the economy is weak.
As a result of tightening credit, rising prices, turmoil in the housing and investment markets, and other factors, many individual and corporate consumers are holding back on spending.
Whether or not your business is experiencing slowing sales and narrowing margins, now may be a good time to take a comprehensive look at your current strategies and business practices. Here are some measures that your business should consider taking.
Draw Up a Contingency Plan
Develop a list of "what if" scenarios that have the potential to hurt your business. Then develop responses your business can take to counter these threats. This exercise will help you act quickly and decisively if any of the threats you’ve identified materialize. Use these questions to get started with this process.
• What will happen if revenues fall by 10 percent? By 15 percent?
• What if your expenses increase by 15 or 20 percent?
• What will your competitors do if their sales decline? Will they cut prices?
• What steps will you take if your accounts receivable collections slow down?
• Will your business be able to handle it if lenders increase their interest rates?
One practical step you can take now is to develop a contingency budget based on how you perceive a slowdown might affect your business in the coming year.
Does your company have fixed costs that can be reduced? Your spending on sales, administrative and general expenses should always be kept to reasonable levels—levels that are in line with a business of your size, geographic location and sales volume.
Look into ways you can cut back on your energy and fuel use. An energy audit is a good place to start since it can reveal areas of potential savings. See whether there are any government incentives for the energy saving projects you would like to undertake.
Examine your inventory levels, since excess inventory can tie up your cash. However, be sure that you don’t cut inventory so much that your company’s operations are compromised.
Improve Cash Flow
Cash is king, especially when the economy is weak. That’s why it’s so important to review your company’s cash flow on a regular basis. You can help speed up collections if you tighten your collection procedures or, perhaps, offer cash discounts for prompt payment.
Keep your eyes open for any warning signs that your customers may be having financial problems. Typically, longer and more frequent delays in settling invoices are a sign that a customer might be experiencing cash flow problems. Be sure that you screen new customers for creditworthiness before you extend credit. During times when the economy is slowing, it may be smart to behave more conservatively when it comes to taking on credit risk.
Talk with Your Lenders
It’s always a good move to keep your lenders informed of your financial position and of any noteworthy developments within your business. Your lender is more likely to work with you through tough times if you have established an open line of communication and a sense of trust.
Proactive planning can help your business through good times and bad. Your lender can work with you to devise strategies that can help your business prosper.
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