Costco Connection - August 2008

Surviving
financial
uncertainty
small
business

Navigating
rough waters

By Peter Fretty

REGARDLESS OF HOW experts spin their outlook on the economy, most agree that rough waters still lie ahead. After all, consumer and corporate spending is down across the board, meaning proportionately fewer opportunities to win business.

Unfortunately, small businesses are often hit the hardest. However, this should not necessarily mean a gloomy forecast. Through planning and taking a few proactive steps, it is possible for progressive firms to weather the storm.

Business owners should devise a plan designed for success, explains Costco member John Reddish, president of Advent Management International Ltd. in Drexel Hill, Pennsylvania. “Small-business owners need to plan for the tough times by identifying contingencies. It all starts with identifying what discretionary expenses can be cut without compromising product [and] service integrity,” he says.

Specifically, Reddish suggests making prudent arrangements with business partners. “For instance, the lines of communication with lenders and suppliers need to remain open. This is the time to look for ways to improve terms, while avoiding the use of credit-card lines.” Although it is unpleasant, you also need to consider payless paydays for key staff and develop a redundancy priority list.

Bill LaFayette, vice president of economic analysis with the Columbus, Ohio, Chamber of Commerce, stresses the importance of taking the time to reevaluate operations as well. “A business model established during good times may not still apply,” he says. “While some think of formal planning as an exercise the bank requires, it has real value in that it

ARTVILLE

spend money on ‘fuel,’ whether that was in
the plan or not,” says Kevin Armstrong, fran-
chisee head of The Alternative Board in
Vancouver, British Columbia, an interna-
tional business advisory organization.
Essentially, success in tough times is a
matter of being in tune with market demands,
enacting a proactive plan and understanding
what areas require focus. No business can
afford to overlook the following three areas
of concern in a tight economy.

Controlling spending. Understandably, cost cuts often come to mind as the quickest way to scale a business for tough times. However, LaFayette warns business owners against making hasty decisions. “The process needs to be strategic. You need to think about the implication of a cut and whether or not it [will] cost more in the long run than it is saving,” he says. “For example, eliminating support staff for the sales team is not smart if it forces the sales team to spend an inordinate amount of time on administrative tasks rather than selling.”

Improving service. Even if you elect to fight for business in new markets, the quality and frequency of existing customer interactions cannot slip during tough economic times. “Instead, increase your touch points with active customers to ensure visibility, which may mean maintaining industry presence and participating in activities. Demonstrate you are there to stay. In some markets, competitors will savage the weak, but keeping your profile doesn’t give them much to work with,” Reddish says.

“ One way to help support the outlay of r esources is to focus on high-profit product [ and] service sales, on-time delivery and sales s upport. The point is to avoid giving custom-e rs any reason to look elsewhere.”

C larifying position. In a down market, there is obviously less business to win, so it i s important to understand and clearly d efine your business’s niche and approach. This is a time to truly reflect and improve. As Armstrong advises, pretending to be an equal to the big names is a dangerous endeavor. “This is a death trap for small businesses because they lack the brand awareness and cash flow of large firms,” he says. “Small businesses that thrive identify marketing initiatives that are [compara-tively] inexpensive and very effective. For example, look towards strategic alliances, search-engine strategies, referral programs, trade shows or other types of marketing that get you in front of the prospect.” C

forces one to think strategically about running and developing the business. It also gives guidance for the appropriate response when events like an economic downturn pop up.”

Of course, planning alone does not dictate smooth sailing. “You can make all the plans you want, based on all the assumptions you can think of, but if the wind isn’t blowing, you might have to drop the sails and

TH IS THREE-STEP PLAN outlines a work- ab le framework to control spending. The ke y is to have enough detail to make d ecisions, but not so much that the complexity deters action.

Identify. Detail both the fixed and flexible monthly expenses that the business incurs in generating revenue. Remaining cognizant of actual expenses is instrumental in identifying where cuts are feasible.

Project. How much income do you expect to earn from the planned expenses? Use short- and long-term history to help develop profit estimates. Pay close attention to how each sale relates to individual expenses.

Repeat. Success comes by frequency and consistency, so repeat the process regularly, making adjustments as the market demands.—PF

Financial
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Based in Michigan, freelance writer Peter Fretty regularly writes on small-business issues, high-tech gadgets and travel destinations. You can reach him at pfretty@gmail.com.