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With the news predicting a slowing economy, retailers cross their fingers that the psychological mindset of an upcoming recession does not make a prediction a reality. While continuing business as usual will help the economy remain strong, this is the time to manage your business well to give it the best chance to weather whatever fortunes are in the future.
Most of the things that recession-proof your business are the same things that make your business successful in booming times. It all comes down to planning and good business management. However as the economy slows, small mistakes in critical areas of business management can be magnified and put your business at risk.
Actively Manage your Business. In a booming economy many businesses find success even with “seat of the pants” management. Well managed businesses are the ones that survive for the long term. If you do not have a business plan, make one!
Watch your Accounts Receivable. Your collections policy is critical. Ensure you are the first in line to be paid, not the last. If you give credit, adhere to your collections policy closely. If you don’t have a policy – make one. Contact customers after you send out an invoice to make sure they were happy with your product or service and that the invoice was received. Treat it as a customer service call – if there is a problem it is better to know so you can fix it before it becomes a collection issue. If your terms are “payment within 30 days”, then ensure you are contacting your customer on day 31 for any outstanding balances. Time is not your friend in collections…don’t let things slide. Make it easy to pay you. Taking a credit card payment over the phone can shift the collection risk to someone else.
Revisit your credit granting policies. Be careful who you extend credit to. You do not want other people’s credit problems to become yours. Be selective on who you grant credit to, especially new customers or customers who are chronic late payers.
Manage your inventory. In a slow economy, carrying large amounts of inventory is risky. Each industry will define what “large” means differently, but in general you should limit your purchases to what you are comfortable you can sell with a reasonable profit margin. It may be better to order more frequently in smaller quantities, and reduce your inventory level of slow moving items.
Keep in close contact with your customers and give good service. Loyal customers are created in hard times. Be sure that you know and understand your customer’s needs. It is more difficult for a client to switch to a low cost provider if they are getting great service and have an established relationship with you. So, your job is to build that relationship and give great service.
Trim Costs. Look for places that you can reduce your costs without impacting your customers, or the future of your business. You can look at your cost of sales expenses as well as your operating expenses. Look for places where there are inefficiencies, or extras that will help the bottom line without sacrificing the product or service you provide. This is the first place to start. Be sure you stay consistent with your long term business goals. It is not the time to panic and slash expenses that are crucial for your future.
Improve Productivity. Look for efficiencies. You likely already know some places where your processes could be more efficient, or your team could work more effectively. Are you wasting resources anywhere? It may be worth discussing this with your employees, as they may have ideas on improvements that you have not considered.
Maintain your Margins. Resist the temptation to discount. While there may be pressure to reduce your selling price…be careful. Reducing margins on your products and services will have a big effect on your profitability and cash flow. If you can reduce your costs at the same time, then you have more ability to pass on the savings to your customers. If you do need to discount to maintain sales, do so selectively.
Meet with your key suppliers. Where it makes sense, look to renegotiate contracts, and request better deals from your suppliers. You don’t want to push your suppliers out of business, but you can be looking for them to trim excess fat as well. As they improve their business they may be able to pass some savings on to you.
Watch for Opportunities in the Market. This could be the time that your competitors get caught. Businesses come up for sale, or others start liquidating inventory. This could be an opportunity for you, if you are prepared.
Continue Marketing, but do it wisely. What you can measure you can manage. This is not the time to slash your marketing budget, but you must ensure you are getting a return for your marketing dollar. Target your marketing at the specific segment of the market that represents your ideal client, and devise a way to measure the return you receive form each marketing initiative. Touch base with past clients, it’s a great time to ask if they need any further work, or have any referrals for you.
Use technology. Do you remember life before the Internet? Keeping in touch with customers, comparison shopping for products and services has never been easier. Whatever your industry, look for the ways that technology can make you more productive or more efficient.
In the end, minding your business during an economic slowdown follows the same principles as good business management at any time. The consequences are just faster to catch you. Stay focused on your long term goals and objectives. Every decision needs to make sense, not only for now, but in the future. Ensure that you keep cash flowing, and don’t get caught with inventory that won’t move or receivables that are uncollectable.
Wendy Lewis is a Chartered Accountant and Business Advisor at Meyers Norris Penny LLP in Courtenay. This article is intended to provide general business advice only. It is not intended to provide advice for specific situations.
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