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20 Small Business Survival Strategies
How to survive tough economic times without laying off workers.
As a business owner or manager, for the past 18 months you’ve been dealing with shrinking profit margins and fewer customers queuing up for what you once considered a “hot product or service.” Questions of how to get through these seemingly difficult times often lead to answers like… “We have to lay off more workers” or “…let’s close offices in the suburbs.”
The problem with this approach is… when the economy bounces back, you’ll be looking first to rehire those who were laid off. Unfortunately, you may find that they have moved on to other jobs, gone back to school, or started their own business. You then put yourself in a situation where you now have to hire and train a new employee or hire a more experienced worker who can “go right away”.
Layoffs should be a “last resort” during an economic downturn. Well, at least until you’ve explored all other avenues, namely until you try the strategies I’ve outlined below. I’ll even go one step further. If you’ve implemented some, if not all, of these strategies, or made them an integral part of your company’s operating culture, chances are you haven’t canceled your long-planned Bahamas vacation.
Additionally, while these key strategies can be employed by businesses of any size, they are primarily geared toward smaller businesses. The definition of a small business will obviously vary by industry, and more importantly, it may depend on the individual assessment of the business owner.In any case, you can find the classification of businesses as defined by the Small Business Association (SBA) by visiting http://www.sba.gov
1. Schedule a weekly budget meeting. Let’s say you have a budget. You might be surprised how many small businesses (a) don’t take the time to develop a proper budget, or (b) don’t have a regular budget review process. Use meetings to challenge managers and supervisors to find ways to reduce expenses in their respective departments (and reward them). If you have satellite offices across the country or around the globe, have managers visit by conference call. Make sure they have the arguments ready to justify their various departmental budgets and plans on how to cut costs.
2. Establish a Profit Committee/Working Group. This should be employee driven. Challenge them to contribute ideas, but more importantly, reward them for good ideas that actually get implemented.
3. Improve your performance reviews. Are the goals of employees (especially senior management) aligned with company goals (ie, increase sales, reduce expenses, improve customer service)? Isn’t the goal more than sweet words or “feel good” words? In short, are the goals specific enough and… can you really “measure” progress?
4. Check your “Turnover” ratio. Profits are quickly eaten up by idle inventory and customers who pay late. Include these items as part of the budget review process. Work closely with your suppliers to reduce boxing quantities, or simply dispose of unsold items! Offer to settle or arrange installment payments of outstanding receivables with your overdue paying customers. In tough economic times, it’s better to have something than nothing.
5. Rely on your leverage with suppliers. Partnerships should not be just “talking”. Negotiate better terms, i.e. try increasing the “days to pay” of the invoice. Even spending 5 extra days per month on top of a $1M annual business could earn your business over $3,000 in extra interest after taxes. That’s real money!
6. Change your payroll cycle. If your pay cycle is weekly, consider changing to bi-weekly. If you make biweekly payments, consider making semimonthly payments (15th and 30th) instead. Perform a cost-benefit analysis to ensure this makes sense for your business. You can reduce payroll processing costs, which can be important, especially if you have a sizable employee base.
7. Get on the “green” bandwagon early. become more energy efficient. Who knows…you might even qualify for a tax deduction. Make it a habit for employees to turn off the lights when they leave the meeting room. Installing sensors for infrequently used rooms or areas may be something to consider. Shut down your computer and unplug your office equipment at the end of each day. According to the government’s Energy Star program, 40 percent of the electricity used in home electronics is consumed when the product is off. I guess this also applies to office equipment.
8. Meet with your banker. Call a meeting now. Not only will you build an important relationship (one that too many managers ignore), but you’ll be asking them for advice. They can see what’s working (or not) for other businesses, so they can pick and choose their brains at will. Best of all…it’s free advice! Discuss issues such as… putting extra cash into money market accounts, CDs, etc. See if you can move your operating account to an interest-bearing checking account. While the interest earned may not be considered “earth-shattering,” it’s money earned by not making any changes. If there is a limit to the number of checks that can be written on this type of account, analyze the fees that the bank may charge versus the interest that may be earned. Pay bills electronically and offer direct deposit to your employees to reduce any check writing costs. Also, is your checking account balance too high? Work with your accountant to look at your cash flow and see if some of that idle money could be earning interest elsewhere.
9. Cut your travel budget (if you have any). Phone calls and/or video conferencing will save you tons of cash. Also, are the workshops and conferences you attend each year really paying off? Perhaps taking 2 instead of 4 would reap the same benefits.
10. Renegotiate the contract. Hire service providers (phone, software, etc.) and consultants to discuss current contracts and keep costs down. Review your lease (office equipment, rent, etc.). Also, are you taking advantage of any “hidden deals” and/or discounts? Have you been keeping an eye on your invoices to avoid “overcharging”? Take advantage of the recession. At this point, no one wants to lose a customer. Where appropriate, involve other suppliers in bidding for your business. Note: Don’t hire them just because they’re cheap!
11. Tax strategy. If you invest a lot of money in equipment and are incurring high business equipment taxes, explore states with business-friendly tax laws. There are advantages to setting up an “equipment holding” company in a low-tax state. Business losses and write-offs may also result in your business becoming eligible for various tax deductions and reliefs. Talk to a good tax attorney about how to maximize these and other tax breaks for your business.
12. “Reserve” budget. In other words, make the “contingency” or “miscellaneous” accounts a line item in your budget. A good starting point is to set aside 5% – 10% of your total spending for emergencies. Remember, if we could predict the future, we would all be millionaires. It is good business policy to incorporate a “reserve” account as an “expense” item.
13. Review your health insurance benefits. If you haven’t spoken to your insurance representative in a while, now is a good time. Regardless, you should review your policy every six months. Small changes in your workforce levels can have a big impact on employers (and employees) Is your contract about to be renewed? Can you rescind the contract without incurring any costs? You might be able to find a good deal without sacrificing coverage.
14. Conduct annual invoice audit. Carefully review invoices received from suppliers. If you don’t have a good system in place to monitor invoices before paying them, you may be surprised at the number of double or incorrect payments that can occur. Adding an extra “0” to a $1,000 invoice results in a $10,000 payment and a $9,000 error. Motivate your employees when they spot these mistakes. For example, if they recover money, share it with them. This is a “win-win” deal!
15. Find abandoned customers. If a competitor closes, it should be spelled “opportunity.” Clients may cut back, but come back when things improve or they find a new job. You need to make sure you are in a good position to fill the void left by your competitors.
16. Open up new sales markets. Strange as it may seem, a recession is the perfect time to look for opportunities in new markets. Territories that were once shunned (especially overseas) are now worth revisiting. Likewise, get ideas from your employees.
17. Get involved in your community. Do not reduce sponsorship of community events and charitable contributions. The money spent on junior baseball uniforms is “big money.” People remember these things. These people are potential customers or good sources of referrals. In fact, it’s worth far more than the hefty bucks you’d spend on a sign at your local MLB stadium. You know…the one that no one noticed!
18. Do you tweet? Do you have a presence on social networking sites? Yes, I mean Facebook, Twitter, MySpace, etc. Are your employees set up on LinkedIn? Even if you’re a “mom and pop” type of business, if you don’t have the “knack” consider paying one of your tech-savvy employees an extra 15 or 20 cents a week to post updates and monitor these for you website.
19. Part-Time and Independent Contractors. Explore the possibility of reducing hours or changing an employee’s status to “independent contractor” before considering layoffs. Employees will still love having an income, and in the meantime, you’ll save on payroll taxes and/or health insurance costs you’re obligated to pay.
20. Finally… be honest with your employees. Don’t tell them everything is fine today and start layoffs tomorrow. On the other hand, if things are really tough, let them know. If you build an honest relationship and take the time to let you know how much you appreciate their efforts, they’ll “strike out” for you in tough times. If you have to fire them, they will understand, even if it hurts. Chances are, if you implement the other 19 strategies she mentions and make them an integral part of your company culture, your employees will be the ones who save your company from failing in a downturn.
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