Small business tips for surviving an economic crisis
June 8, 2011 at 1:08 a.m.
By Kacey Butler
By modifying daily operations, your business will have a better chance at surviving the economic crisis. Find below a few key topics to help your business weather the storm.
PRODUCTS AND SERVICES
Careful management of inventory levels is needed as demand for your services decline. You don't want to end up holding excess inventory, which ties up much-needed working capital.
A close look is also needed with product development projects. If a project is not going to provide a short-term return you should consider deferring it.
Lastly, become friends with your suppliers and communicate with them regularly. They react better if they know what might be coming rather than finding out when the problem reaches a critical point.
MARKETING AND SALES
Review marketing expenditures closely. Be selective and consider using online marketing as a substitute for traditional channels. It is a lot cheaper and effective.
Avoid the temptation to cut prices to get the sale. Cutting prices cuts profits, and you need profits to generate cash. It is easy to drop prices and hard to get them back up again.
Consider part-time solutions. This may not be the best long-term solution, but it gives you flexibility, which is a major weapon in tough times.
Salary increases are always an issue. However, it is more important you protect the business so that employees have jobs in the long-term.
Also, communication to the team becomes more important now than ever. You do not have to reveal financial information, but do communicate regularly with the team.
MANAGE FOR CASH
If you can't pay your bills, no matter how profitable you are, you will crash and burn. There are many tactics that can improve cash flow.
GET YOUR BALANCE SHEET RIGHT
Many businesses have a poorly structured balance sheet and pay the price for it. Assets are financed from both debt and equity, and the right balance is needed. As things get tight, try and move your balance sheet to more equity and less debt.
FINANCING CAPITAL EXPENDITURE
Assets should be funded within the lifespan of the asset. There is nothing worse than paying off a loan related to an asset that has worn out.
On the other hand, paying off assets quickly may draw too much from free cash flow and restrict other business development activities. A lot of businesses pay for assets out of cash flow, and over time there can be a lot of working capital tied up in fixed assets.
As a small business owner, always be disciplined and make economical and smart decisions. Keep in mind that the success of your business uses the above topics every day - not just during an economic crisis.
Kacey Butler is a senior business adviser working in the Gonzales office of the University of Houston-Victoria Small Business Development Center.