As the economy gets more and more tenous, most businesses find themselves in a position of uncertainty. How will the credit crunch affect sales? What should I do to insulate myself from further economic decline? What can I do to maintain maximum profitability?
While it can be a stressful time, the current economic situation certainly doesn’t mean it’s time to close up shop. If anything, it just means you’ve got to be more aware of what’s going on with your business and plan accordingly.
According to Tim Berry, the Business Plan Coach for Entrepreneur.com, there are three fundamentals you must keep in mind as you get back to business planning basics:
- Watch things more closely. You must track your key indicators closer than ever and as you begin to notice down turns, react immediately and accordingly. It’s also a good idea to shorten your reporting cycle, so if you’d normally review numbers monthly, do it weekly now. If it was weekly, you might consider daily. This will give you a better sense of where things are headed and you’ll be able to better react.
- Keep a close eye on the drivers of cash flow. “Keep a very close eye on burn rate vs. revenues. Burn rate, in this context, is a lot like fixed costs, but more. Fixed costs are what you’d pay even if your business closed down. Burn rate is what you pay regularly every month to keep your business running, but without the variable costs of sales or direct costs. That includes probably all of your salaries (unless you have some assembly labor or part-time labor that goes up when sales go up and down when sales go down), your rent, your ongoing marketing expenses, your office expenses and all the rest. If your revenue goes down, you can maintain your burn rate for a while, sacrificing profits; but you can’t let revenues stay under the burn rate for very long without losing capital and, if the problem continues, going under.”
- Don’t let people go too soon. In difficult economic times, the initial reaction for many business owners is to cut staffing to help save costs. Unfortunately, this can often back fire as quality may suffer or you may end up with more work than you current staffing needs may be able to handle. Human capital, while often the most expensive, it quite often the most difficult to replace, especially when you factor in the cost of finding and training qualified employees. Hold out for as long as possible before slashing jobs, and when you do, do what you can to be gentle. You never know when you may need to hire someone back!
Obviously, times are tough and will be for the foreseeable future. But with a little bit of careful planning, it is possible to not only weather the storm, but solidify your business for many years to come!
