Yet the fact that conditions are changing opens up opportunities for resourceful companies to outsmart larger competitors who, during a downturn, carry on business as usual or are unable to adapt quickly - except to fire employees. Entrepreneurs who survive and even prosper during hard times must be able to look beyond the present, to see their business from a new perspective, and do business differently.
Here are 14 specific recommendations for small business owners and managers to follow during economic upheavals:
1. Watch your inventories carefully, but don't hold them down so tight that you'll lose sales. Typically during a slowdown, there is an imbalance between slumping retail sales and bloated inventories - don't be saddled with leftover merchandise that ties up your cash flow. One possibility is converting inventories into cash. Keep an eye out for those products that can tolerate even leaner inventories or that should be eliminated from your stock. This way if sales nosedive, less of your cash is locked into unproductive assets.
2. Monitor your cash flow very diligently, and forecast it monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Make sure your financial statements provide information that is timely, relevant and accurate. Negotiate with suppliers, contractors and landlords for better prices or short- term reductions, and even consider trading goods and services on a barter exchange for credits instead of for cash. Take advantage of supplier discounts for prompt payment, and don't pay for no-discount bills before they're due. If the cash bind has already surfaced, talk to creditors before the bills are past due to persuade them to extend payments of your current bills.
3. Separate the 'nice to do' from the 'have to do,' and eliminate nonessential expenses as much as possible. Ask yourself, is that activity necessary? If not, don't do it.
4. Reduce or stretch out debt, and build up your capital reserves. Watch the credit-worthiness of your customers, even bread and butter accounts. Remaining close to existing customers, and checking to see how they are getting on during the economic downturn, not only helps avoid unpleasant surprises but could also lead to new opportunities.
5. Get aggressive with collections. Assume that the average collection period for your industry is 45 days, but your company is at 51 days. After bringing that collection period down to the industry average, keep working to get it down to 40 days. Being tough with customers may be unpleasant, but it's an important safeguard against the effects of a prolonged economic slowdown.
6. Look hard at capital spending. Consider delaying both the purchase of high ticket items and expansion plans that take a long time to pay off.
7. Strengthen your banking relationships, which includes letting lenders know the company's financial position. Banks are looking for business to boost their income, but are also trying to minimise risk, so they are careful about what kind of loans they undertake.
8. Look for opportunities to reduce rented space. If you acquired space in anticipation of staff expansion that ultimately proved unnecessary, this may be a good time to sublet that space - thus reducing overhead and generating extra income.
9. Now is the time to be prudently aggressive in the marketplace. Actively seek out new business, and perhaps add a salesperson or two or an extra service to give you an edge over competition.
10. Similarly, don't skimp on service and quality by being understaffed. Options include freelancers, consultants and part-time employees. One advantage of a slowdown is that hiring gets easier because there are more candidates from which to choose due to layoffs and other cutbacks.
11. In strategising how to build your customer base and getting current customers to buy more, the importance of good service cannot be overstressed - especially as their buying power or willingness to spend is lessened during tough economic times.
12. Historically, many businesses reduce advertising and promotional expenditures rather than slash fixed costs during hard times. However, studies have shown that those maintaining or increasing ad outlays during slowdowns wind up outselling rivals who cut back. Savvy marketers can boost sales and market share, even if the industry in which they compete is in a slump, by focusing on short-term tactical techniques such as sales and price promotions (including cents-off coupons and rebates), and tailoring advertising in response to the shaky economic climate. Survival guidelines include:
* Monitor your competitors' advertising. If they're cutting down, seriously consider increasing your ad budget and hitting harder. This will provide a great opportunity to capture - and retain - a larger share of the market.
* Avoid gimmicky and clever advertising. Center your message on the benefits and advantages of your product or service - such as convenience or energy efficiency - rather than making emotional appeals.
* Use direct-response advertising techniques. Use hard-hitting copy with simple but convincing language, a special offer the prospect will find hard to pass up, and a strong call to action.
* Avoid ads that look like ads. Make them appear to be vital messages to the consumer offering them the most for their money.
* Stress quality and durability. Consumers are looking for as much value as possible in a weak economy. But don't actually use the words 'quality and durability,' as they have degenerated into advertising clichés. Show, don't tell.
* Study advertising research thoroughly. Know which page positions pull best, which copy factors work effectively, which colors do the job, and so on. Spend every ad dollar carefully.
* Re-examine your marketing mix to ensure it is the most cost effective.
* Keep in mind that perceptions play a major role in a week economy. If people believe money is going to be tight, they will behave as if it is - even if they have money to spend. Your ads have to convince prospective customers that your product or service is a wise investment.
13. Another mistake during recessionary times is to reduce training budgets. Training can best be conducted during slack periods.
14. Get employees involved in policy choices as well as tactics and implementation - asking, for example, if costs can be cut 15 percent without layoffs. If layoffs or a significant reduction in work hours are unavoidable, let employees take a lead role in designing the programme. Shortened hours, job reassignments, job sharing and other alternatives may surface. Meet with staff regularly to exchange ideas on boosting productivity and other issues. Create an incentive for good suggestions, and foster a team spirit for survival.
While economic downturns are difficult, and increase the obstacles small businesses face in trying to survive and grow, it doesn't necessarily mean companies have to slash earnings and compress market share. Resourceful entrepreneurs can capture the available opportunities, and take steps during today's hard times to lay the groundwork for tomorrow's prosperity.
Originally published in Her Business magazine