Company Doctor – How to navigate the turbulent recessionary waters

Even during these uncertain economic times, you can position your company for success, but it takes courage.

It’s the kind of courage one of my clients showed when she took steps to rescue her apparel and gift business from the brink of disaster. Facing up to her challenges, she closed a store and a warehouse, relocated her flagship store and restructured produce assortment and pricing. As a result, she has a positive cash flow and has renegotiated her debts while repositioning her established business for growth.

Here are some strategies you can employ that will stabilize your business during these turbulent economic times and will position your company for growth when the economy rebounds. Let’s examine each of these strategies and see how they can apply to today’s economic crisis.

Focus your business dollars

Reduce the inventory investment in your marginal items. Prioritize your products or service offerings into four categories: A, B, C and D. You keep the A and B categories, reduce your investment in the C and eliminate the D category.

Put your dollars into your high margin, high turnover items. Now that you have identified the A and B categories, take the money, time and human capital you had invested in the C and D categories and invest them in the A and B ones. This step will increase your return on investment in these categories and profitably grow your business.

Review human resource plans

Consider early retirements and buyouts. If you need to downsize your company, see if you have employees who would accept the option of early retirement. Also, can you afford to buy out an investor or partner and reduce your overhead?

Job sharing offers you the opportunity to have two employees share one job, while reducing their hours worked until business improves. There are three benefits here: first, you reduce your payroll expenses and second, you retain these employees and avoid laying one off for an indefinite period of time. When business improves, you can ramp up their hours as needed.

Flex hours offer you the opportunity to reduce your work week from five days to four days permitting your employees to reduce their commuting and childcare expenses. It also reduces your operating expenses if you elect to reduce your total operation to four days.

Outsourcing permits you to reduce your payroll expense by hiring an outside firm to perform certain specific functions. For example, many companies outsource their payroll functions, thus eliminating the need for a payroll clerk. Other firms outsource their human resource functions and have a private firm oversee their benefit and health insurance functions. They also handle all interviewing of potential new employees.

Identify your low producers and replace them if they cannot demonstrate improvement in a set period of time. Only replace if necessary.

Concentrate your purchases

Review your vendor lists and eliminate marginal suppliers. Where two suppliers offer the same line of products or services, negotiate with both to see who will give the best terms and prices. See if a long-term contract can be negotiated that would protect your supply chain and eliminate one supplier.

Combine shipments where possible. Have your traffic manager or logistics consultant maximize your freight costs by getting you truckload pricing or combining shipments with another local company. This strategy pertains to both inbound and outbound shipments.

Direct ship to eliminate handling where possible. If you are a distributor, elect to ship direct when possible. This speeds up delivery time and eliminates the need to reprocess the inbound shipment. It can also reduce your investment in inventory.

Strengthen your foundation

Reconnect with your best clients and eliminate the low margin and slow paying clients. This will have a positive impact on your cash flow and balance sheet. Target new customers and markets where the competition is struggling.

Mine your customer base to determine what products or services they currently use and see where you can build on those products or services from your portfolio. You may determine that there are products you don’t currently offer that need to be added to your portfolio.

Review your capital investments

You can elect to lease rather than buy during this period of economic turbulence, thereby maintaining your cash reserves.

Examine the possibility of extending existing leases and maintenance agreements to hold the costs down.

Delay further equipment acquisitions or buy used when possible to reduce the level of capital investment.

Review your corporate finances

Renegotiate your line of credit with your bank. Keep your bank officer in the loop. They do not like to be surprised. They can assist you with negotiating your leases and assist in funding needed capital investments.

Refinance where possible to lower interest rates. Many business owners resort to using credit card debt to finance their businesses. This could be a fatal mistake since credit card financing charges can be as high as 24 percent or even higher if you miss payments or are late. Work with your banker to find more efficient ways to finance your business.

Where possible, renegotiate your accounts payable with your vendors. They would rather get paid slower than not at all. The last thing they would want is for you to go bankrupt, where they get pennies on the dollar. In some cases, you may need the assistance of an attorney in these negotiations. That would be money well spent.

Be more visible

Reconnect with your employees, share the pain with them. They need to know where the business is going and what steps you are taking to protect the business and their jobs. This is an opportunity to strengthen morale and eliminate destructive rumors, which leads to valuable employees jumping ship.

Visit your major clients and ensure them that you are here to stay and can continue to meet their needs. Thank them for supporting you during these troubled times.

Manage by walking around. This is a very effective strategy, which permits you to reconnect with your employees and get a first hand look at what is happening on the shop floor. Work with each supervisor and see what support they need to improve efficiency and reduce expenses.

Increase the level of communication at all levels. Meet with your management team weekly and possibly more often to keep the lines of communication open and to deal with any challenges that pose a threat to the business.

Pay attention to your business compass

Review and update your strategic plan and revise it based upon your current sales and profit trends. Focus on strategies and tactics that will assist you in achieving your short-term objectives.

Concentrate on what makes you different. Build on your successes. Invest in the services or products that are growing and producing the greatest cash flow.

Be proactive and not reactive during the storm. Making sudden changes in direction could damage your businesses. Try to be ahead of market moves and don’t overreact to what you believe are trends, when they are actually a fad.

Not all of these strategies pertain to your business, but many of them can help you navigate the troubled waters that lie ahead in the next few months.

My client has a better chance of surviving than she did before she took action.

The worst thing that any business owner can do is to do nothing. Don’t be afraid to make a decision, and turn your business into the wind.

 

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