Get Through a Recession Successfully part 2
The main goal of any business owner is to survive the present recession and to grow a leaner, more cost-effective and more profitable operation. The secondary goal is to grow the business even in this present recession.
Recommended Best Practice Activities
The Nuts and Bolts… The following list of suggested best practice activities is crucial for your business' survival and for its growth in a recession. The actual financial stability of your particular business, at the start of a recession, will dictate the priority and speed of the implementation of the following best practice activities.
1. Diligently check your cash flow:
Estimate your cash flow monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Incorporate cash flow statements into your monthly financial reporting. Project cash necessities three-to-six months ahead. The key is to know how to monitor, protect, control, and put cash to work.
2. Meticulously convert your inventories: Convert excess, obsolete, and slow-moving inventory items into cash. Contemplate returning surplus and slow-moving items back to the suppliers. Close-out or inventory reduction sales work well to resize your inventory. Also, think about narrowing your product offerings. Well-timed order placement helps to lower excess inventory levels and occasional material deficits. The key is to reduce the amount of your inventory without losing sales.
3. Timely collection of your accounts receivable: This asset should be exchanged to cash as quickly as possible. Offer prompt payment discounts to instigate timely payments. Make changes in the terms of sale for slow paying customers (i.e. changing net 30 day terms to COD). Invoicing is an important part of your cash flow management. The first rule of invoicing is to do it as soon as possible after products are shipped and/or after services are fulfilled. Place an emphasis on decreasing billing mistakes. Most customers delay payments because an invoice had mistakes, and therefore, will not pay until they receive a corrected copy. Email or fax your invoices to save on mailing time. Post the payments that you have received and make deposits more regularly. The key is to develop an effective collection system that produces timely payments and one that gives you advance warning of problems.
4. Re-focus your concentration on your existing clients/customers: Make customer satisfaction your first concern. A regular analysis of your customers' buying history and frequency of purchases can disclose some interesting facts about your customers' buying habits. Contemplate signing long-term contracts with your main clients/customers which will add to your security. Give a discount for advanced cash payments. The key is to do what it takes to keep your existing customers loyal.
5. Re-negotiate with your suppliers, lenders, and landlord:
i) Suppliers: Always keep your negotiations on the level of need,
saying that your company has reviewed its cost structure and has
established, that it needs to decrease supplier costs. Tell the
supplier that you value the relationship you have grown, but that you
need to get a cost reduction urgently. Ask your supplier for a
reduced material price, an extended payment cycle, and the removal of
finance charges. Also, see if you can buy material from them on a
consignment basis. In acknowledgment for their price concessions, be
willing to agree to a long-term contract. Examine the idea of
bartering as a form of payment.
6. Re-evaluate your work force requirements: This is a very
critical area. Salaries/wages are a major expense of doing business.
Therefore, any reduction in the hours worked through work schedule
changes, short-term layoffs or permanent layoffs has an instant cost
saving benefit. Most companies ramped up hiring new employees in the
good times, only to find that they are presently overstaffed due to
decreased sales during the recession. In terms of down-sizing your
employees, be very careful not to reduce your employees to a level
that forces you to neglect customer service and quality. Consider the
use of part-timers or the current trend of outsourcing certain
operations to independent contractors.
9. Seek the help of outside advisor's: The use of an advisory
board comprised of your CPA, attorney, and business consultant offers
you objectivity and provides you with professional advice and
guidance. Their collective experience in working with similar
situations in past recessions is invaluable.
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