What To Do During Tough Economic Times

by Tom Egelhoff

Author Tom Egelhoff

One disadvantage of small towns is, when business has a national downturn, it often hits small towns hardest.

Because of the smaller population base a rise in prices may cause customers to re-think purchases or put them off until later.

How you react depends on the seriousness of the situation. Sometimes you can just hang in and ride out the storm.

If the situation is really serious, then you may have to resort to drastic action. Unfortunately the most drastic action is laying off some employees. Not a pleasant experience.

There is nothing worse than losing a good employee who did nothing to deserve it.

Imagine you are swimming and suddenly a strong current starts pulling you away from shore. If it carries you too far you may not be able to get back.

You know how to swim -- slow, methodical strokes -- out of the current and then back to shore. But suddenly panic sets in.

You start to valiantly pound and kick against the current. You begin to weaken. The harder you work the worse it gets and you are swept away.

The same thing can happen in your business. The first step is calming down and getting your business under control.

It isn't so much that you must get back to shore (economic safety) as much as keeping shore in site and not going out any further.

Poor organization increases your chances of failure.

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Here Are Some Things To Do When Times Are Tough

  • If you don't already have a good accounting system in place, make an appointment with an accountant and make sure you know where you are financially.

  • Make a complete analysis of the current strengths and weaknesses of your business. What strengths can you capitalize on, what weaknesses can you eliminate?

  • You may need to consider an attorney to handle contacts with unsympathetic creditors.

  • If you are losing customers, try to identify the key problem areas that are responsible and correct them.

  • If you have been offering 30, 60, 90 day credit to customers you may need to offer this service only to your best paying customers. You can't afford slow paying customers. Tighten accounts receivable. Ask customers to pay faster.

  • Concentrate all spending to either increase sales or cut costs.

  • Conserve wherever you can to cover the costs of fixed assets. Buildings, delivery vehicles, payroll etc.

  • Resist the mistake of cutting expenses for promotional efforts during slow periods. You need paying customers.

  • Concentrate on core products and higher profit items.

  • Eliminate vendors or middlemen not carrying their fair share.

  • Completely review your purchasing systems and procedures.

  • Sell excess inventory and equipment.

  • Analyze cash flow on a regular basis. Daily if necessary.

  • Can you reduce short term debt?

  • Consider offering incentives to reward good sales efforts.

  • Share promotional costs with other businesses or vendors.

  • Obtain long term credit or investment partners.

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How Do You Know When You're Cutting To Deeply?

Sometimes you can take a good thing too far. If two aspirin are good, then 8 must be better. Here are some things to let you know you're going too far.

  • Customers complain they don't see your salesman often enough and are trying your competitors.

  • Employees are concerned about their situation and start discussing company information with customers.

  • Customer service complaints increase.

  • Employee morale is low. Increased absentism.

  • Sales people and other employees are reluctant to try new ideas and become less aggressive in closing for fear of losing sales.

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When It Really Gets Bad

So, how bad can things get?

We've all heard the stories of business survival.

Take control of the cash flow, sell company cars, eliminate bonuses, call in credit cards, fire non-essential employees, change the compensation system, change the management system, and still try to keep as many good employees as possible.

Hopefully, you will never have to resort to these measures in your business.

The bottom line is simply this. When you started your business, you had a business plan.

Once the business was up and running you put the plan away and probably never looked at it again. You should revise and renew your business plan every year.

Revising your business plan will force you to take stock of your business and where you want to go. It will also keep you up to speed on what's going on in the world that affects your business.

I know you don't have the time to do all this. Well my advice is to make the time. When tough times come -- and they will -- you'll be prepared.

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