It’s been about 7 years since we experienced an economic downturn. Economists believe that the boom is over and that we’re in one right now. Small businesses tend to feel the credit crunch more than large enterprises when money gets tight, and, according to the Small Business Association (SBA), their members report that the squeeze is happening already. What can a business owner do to survive lean times? Managing cash flow and looking for every possible way to save money are both crucial. Here are some ideas that will help you develop your own strategy:
- The first thing to remember is that you set the example for your employees. Be confident but realistic. Talk to your employees candidly about the need to cut-back on spending, and set a good example. Above all share good news and communicate your optimism and confidence in the future.
- Get lean and mean. It’s time to see where you can save money and reduce business expenses. Look at all your margins including payroll, marketing, rent, supplies and transport. Start at the bottom (warehouse or mail room) and work your way up. Look at how efficiently goods are processed and put into inventory. Determine if shipping and postage costs and other miscellaneous out-of-pocket expenses are being passed on to customers. See where expenses could be trimmed, staff cuts made, or where outsourced work might be handled in-house.
- If you haven’t already, now is the time to get tight control over your firm’s purchasing and expense approval processes. If you have several people making purchases or approving expenses, either centralize the processes or provide clear guidelines on purchasing and expense sign-off approvals. Clarify who can approve expenses or purchases, and up to what dollar amount. Require receipts for expensed items. Expense reports should require approval from both the employee’s immediate supervisor and a senior executive. Take a hard look at your vehicle expenses and find any perks and privileges that may need to be shelved for the time being.
- No one likes to contemplate lay-offs but it may be time to revisit your organizational chart. Do you still have job slots that today’s technology have made practically obsolete? Know who are your most valuable and flexible employees. If lay-offs are necessary, weed out any under-performers or troublesome people who create friction. When it comes to administrative staff, can you combine two existing positions to create one new job?
- In order to maximize cash flow, you’ll need to be extra diligent in collecting money from delinquent accounts. On the other side of the coin, be vigilant when it comes to your vendors. You can’t afford to be left high and dry by a vendor who suddenly closes his doors. Running regular credit checks on both new client prospects and vendors is critical during tough times.
- Don’t take on client expenses if your business requires you to subcontract to specialists or layout substantial out-of-pocket payments which you must then charge back to your clients for subsequent reimbursement. This applies particularly to professional service businesses like marketing agencies that manage and execute clients’ marketing plans with the understanding that they will hire special workers (video crews, make-up artists, etc. etc.) on behalf of their clients. Costs for sub-contracted specialists or out-of-pocket costs for buying pricey items (like ad space, printing costs or technology/website hosting) should either be billed directly to your client by the suppliers, or the client should provide the funds up-front to your firm before work begins.
Cuts may be needed, but don’t be shortsighted. It may be tempting, but think long and hard before slashing your marketing or advertising budget. Now more than ever, sales people need the tools to reach and capture more customers.