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Up until about 18
months ago, having years of experience under your belt or an in-depth
knowledge of history wasn't necessarily worth much. Instead, what mattered
was how ruthlessly aggressive you were, how well you could work the system,
and your talents as a salesman and dream merchant. Now, though, the times
have changed. People are looking for answers from those who are not operating
on the basis of youthful bravado alone, but who have a fair share of battle
scars. In "Surviving the Recession: One Entrepreneur's Playbook," Fortune Small Business offers up some helpful advice from a seasoned pro on managing a
business during hard times.
I've been in business
for 30 years, so I've lived through several downturns. You need the right
outlook.
All through the
summer I thought maybe I was dodging a bullet.
There was talk of
recession, but my Chicago picture-framing and home-furnishings businesses -
120 employees, about $15 million in revenue - were doing fine. Then the stock
market crashed, and my dashboard software showed sales taking a hit.
Unlike in previous
recessions, I didn't scratch my head and wonder what to do. I immediately
started cutting expenses and staffing.
The first time I went
through a recession, in the '80s, I didn't know what to expect. Obviously
business slowed, but I wasn't sure how to react because the changes were
subtle at first. Everything looked and felt the same. If you're in
manufacturing, your employees don't come to you and say, "Hey, boss, I'm
going to be done around three o'clock. Should I go home early?" They
stretch the work out. The activity is unchanged - until you run the numbers
at the end of the month.
If your revenue is
off about 10%, that might not sound so bad. But because of fixed costs such
as rent, that 10% decline can easily wipe out 100% of your profit. The big
surprise comes if you don't make changes. In my case, most of my fixed costs
were fixed, but I could have cut payroll. I didn't, and I paid dearly.
There's an old saying, "Smooth seas make a poor sailor." Once
you've weathered a few economic storms, you learn how to adapt. Here are some
suggestions that might help you.
I recently asked one vendor
for a discount if I paid on delivery instead of the standard 30 days later. The
salesperson was skeptical but called back after five minutes offering 10%. That's
a huge savings. It turned out this particular vendor had 30 accounts that
were more than 90 days overdue. The lesson? Opportunities present themselves
during recessions.
Not long ago I bought
a machine that shreds discarded cardboard for use as packing material. It's
saving me $10,000 a year (while producing less landfill). But here's the thing:
You should always be looking for savings and efficiencies - not just when
times are tough but even when you're growing. Growth can mask problems. Are
you on top of purchasing? Shopping around aggressively? Adopting new
technologies that can help your business run more efficiently? Spending your
marketing dollars wisely?
I've also saved by
cutting back on Yellow Pages advertising in recent years - I think new media
offers a better return. But don't be tempted to gut your advertising.
Companies that continue to advertise come out ahead after a recession,
according to studies by McGraw-Hill Research. And that makes sense: If your
competitors are in retreat, you can build your market presence.
Instead of cutting
advertising when my sales fell last fall, I checked inventories. I realized
that I needed to put my home furnishings on sale faster. I used to wait at
least six months before discounting a product. Now if something doesn't sell,
it usually goes on sale in four. That's another lesson I learned the hard
way: You can survive decreased profits if you have cash flow, but the
converse is not true - if cash flow takes a dive, you're in trouble.
That will happen if
you let your receivables or your inventories get out of control, which is
surprisingly easy. That's because most small businesses are driven by sales.
In good times, you never want to lose a sale by not extending credit or by
running out of an item. But if you're not vigilant when sales slow, that
mentality can fill your warehouse and empty your checking account.
That concern recently
drove me to the managers of my framing facility, who reported that they'd
just cut employee hours across the board. I told them to consider laying off
someone instead. Cutting everyone's hours might sound fair and reasonable,
but it can do more harm than good. What happens is that everybody suffers,
and eventually somebody quits. Too often it's the best person in the
department who walks. I'd rather be in control of who stays and who goes.
That's part of being
a leader, which is what your employees want and need. Times may be tough
right now, but they will get better. In the meantime, don't make the mistake
I made in my first recession. Take action. You have more power than you might
think.
Jay Goltz employs 120
people at Artists Frame Service, Chicago Art Source and Jayson Home &
Garden, all based in Chicago. He is the author of The Street-Smart Entrepreneur (Addicus Books).
Michael J. Panzner
Editor, Financialarmageddon.com
Michael J. Panzner is a
25-year veteran of the global stock, bond, and currency markets and the
author of Financial Armageddon: Protecting Your Future from Four Impending
Catastrophes, published by Kaplan Publishing.
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