By Mark Rosenzweig, Score NE Mass Counselor
Many people when faced with rapid change, like an ostrich, put their head in the sand and wait for the change to go away. In business, that is a sure way to disaster. You need to adjust to the change and find ways to benefit from it. We are currently going through one of the biggest changes in economic conditions in decades and sitting by and wringing our hands just won’t cut it. Here are some things that can help you weather the storm, and you should start implementing them today.
Focus on Cash
Although we hear a lot about the credit crunch and how our banking system is frozen, for the small business it is always tough to raise cash, so managing it wisely is critical and never more so than today.
First, look to reduce spending in every way possible. Some actions seem simple to put in place, such as reducing heating in the store; since most customers are dressed for the outside temperature, your customers won’t mind and your employees will have to add some sweaters. Look at lighting, store hours or factory hours; if you can shrink them, you reduce the operating cost. Can you reduce some of the staff expenses – no free coffee, etc.? Can you redistribute the work to avoid overtime or reduce staffing to fit the current volume levels?
Second, generate cash or preserve it by reducing inventory. Return inventory you don’t need to your vendors and get cash refunds. Sell off inventory at reduced prices to raise cash for other expenses. You might lose future profit, but you get cash to pay your bills. Order less. With factories having less business, lead times are shrinking, and you can reorder if you need to and get merchandise quickly. Cut back on supplies, and share suppliers between departments. Collect fiercely. If you sell on terms, start your collection process before they are due to make sure you get paid. (The squeaky wheel does get the grease!) If you vendors give you terms, take them if you have the cash to spare, but for all others, stretch your payments out as long as your vendor will tolerate.
Third, talk to your bank. If you have a loan, see if you can renegotiate it for better terms, or a longer period. If you have a line of credit, can you get a larger line or better terms? Work with your banker, and think about what the SBA can do to guarantee your loan if that will help. Ask your Score office for assistance in finding other banks interested in loans to small businesses like yours.
Fourth, talk to your landlord if you rent your space. Landlords don’t want empty space, so you may be able to get a temporary roll back in rent, or at least put off any escalations that may be coming in your lease. It never hurts to ask.
Fifth, prepare a 6-8 month cash projection. See how healthy is the cash flow. Write down the assumptions. Play “what if” game to build contingencies. So if any of the assumptions does not happen, you know what to do.
Lastly, use your cash smartly: If you have cash, and have needs, maybe this is time to negotiate deals. For example if you need a truck, it may be the time to buy it. If your cash flow looks poor and your projections do not look to make it sustainable, you may have to close the doors. Before you take that step, come into Score with your analysis, and let’s see if we can give you ideas to make it better.
Focus on Customers
Depending on your business, the exact methods of focusing on customers may vary, but the basics are pretty much the same. Make contact early and often. Develop reasons why the customer will benefit from coming into the store, or talking with you. Clearly sales and discounts are appealing, but we have become a jaded society on sales. Some stores seem to be permanently having a sale, and pretty soon people just expect it. Think about the value proposition you can offer. Why would the customer be better off buying from you rather than someone else, and why buy know rather than later? It is not an easy question to answer, but if you can, you have the most powerful weapon to build your business.
You will need to do more for your customer than in the past to earn their business and more than your competitors who are trying to steal your customers. Helping people to carry their purchases to their cars or offering samples are some of the ways to do this. Give out next visit coupons (with an expiration date), so the customers you do have come back more often. Create events like after hours wine and cheese party to shop the store in a more relaxed and fun atmosphere. Deliver small gifts to your key customers as a way of saying thanks for your business, and reminding them of your interest in their business.
Ask if the customers find everything they are looking for. What would they like to see next time they visit? Here is a personal example: I was in a store in Boston few weeks ago. I finished my shopping but not my shopping list. As I was going to pay, one staff person asked if I found everything I wanted. I replied “yes, but I am still missing a couple of items”. Then, she took my shopping list and walked me to the shelves. They were all there; I just had not seen them. One simple question made my life easy and sales in her pocket.
Focus on Marketing
Get out the word. Network at every opportunity. Join the Chamber of Commerce if you are not already a member, and get involved. Attend business related society meetings as well as thing like Rotary, Knights of Columbus and other organizations where your customers spend time. Get involved in the town and its activities. Find out who at the local paper you can talk with to get articles about you and your business in the local newspaper and magazines. Attend trade shows and any mixers they may offer. Spread the word, and keep your business in their minds.
If your competitor is closing, move in to his markets. Buy his customer lists and if he has good people, make the tough call, and trade up by hiring them and letting your less qualified people go. Go to his customers, and ask how you can help them, and work hard at gaining their business.
Review your market and customers. Is your market down because of the general economy or a shift in purchasing power or needs? Will you market recover or do you need to find new markets by repositioning your operations to healthier opportunities? Can you diversify? If you sell left handed widgets, how about right handed ones?
The Bottom Line
Waiting for the recover won’t cut it. We are facing a prolonged downturn, and those who survive and prosper will do it by being proactive. Change is difficult, but not changing is not an option. Get busy today, and fight for every customer and every dollar.