BUSINESS TIPS FOR DEALING
WITH A DOWNTURN
By Karl Hardesty, Tatum CFO Partners, LLP
Businesses nationwide
are struggling to cope with the effects of a recessionary economy.
Slashing operations to the bone isn’t always the best solution,
however. Companies should use this time to re-examine their operations
and prepare for better times ahead. Because we work with companies
across the country, in all development stages, our CFOs at Tatum
CFO Partners LLP have compiled a list of suggested strategies to
help our companies minimize the negative effects of the economy
and emerge as survivors on the other side of the downturn. The top
tips are included below.
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Rethink your business
model. Re-examine your customers, consider their changed
needs, and take the opportunity to capture new markets for your
products and services. When the real estate market soured in
the 1980s, many companies and individuals adapted by turning
to bankruptcy assistance and other strategies. Follow the example
of the high-end construction company that developed a series
of lower-priced, standard designs to expand its customer base.
-
Optimize working
capital. Pay extra attention to credit and collections.
Reduce receivables, manage payables and decrease inventories.
1) Query major customers to find out whether they anticipate
delays in payment. 2) Contact suppliers to negotiate extended
payment terms. 3) Cancel any outstanding purchases that are
not essential. 4) Recognize all possible expenses and losses.
Don’t be shy about appropriate write-offs -- including
divisions and locations that no longer make economic sense.
-
Examine all costs
and operating expenses. Eliminate any that aren’t profitable,
or don’t add value from a customer’s perspective.
Don’t cut back on what differentiates your products
and/or services. There may be a hidden opportunity if your competitors
cut costs that lower their service level or product quality
and you can continue yours or – even better – improve
it. Don’t cut capital spending designed to improve
productivity or R&D spending on new product development.
-
Re-examine your
debt and capital structure. Meet with key lenders to review
your financial forecast. Know where you stand with them, and
make sure their expectations are not too high. With interest
rates falling, consider new debt structures to reduce interest
expenses, improve cash flow, and provide credit for acquisitions.
Lenders and investors may also be more amenable to restructurings
they would never consider in better times.
-
Quality and customer
support. Companies with a reputation for having quality
products and services always come to mind first when a buying
decision is being made. It is always good business to maintain
a strong and comprehensive focus on quality and customer service.
In challenging times, it is an imperative.
-
Reach out to others
and reaffirm existing relationships. Even in the most difficult
of periods, core marketing and relationship maintenance are
essential to business recovery. Do not curtail sales
and marketing expenditures. Your competitors most likely will
do so, giving you an opportunity to increase market share when
others are losing theirs.
-
Keep the lines
of communication open. Nothing is worse than keeping employees,
customers, suppliers and investors guessing about the company’s
plans and actions during a time of uncertainty. Communicate
good news, bad news, plans, changes in plans, reasons for plans/actions,
successes, failures, etc. Deal with reality – don’t
paint a rosy picture for your board and lenders. Credibility
later will count for a lot.
-
Focus on your
employee team. Don’t automatically lay off large numbers
of employees when times get tough. Remember that a football
team doesn’t downsize to eight players when the game turns
against them. The best teams dig in, and everyone works harder
to make success happen. Instead of layoffs, consider pay cuts,
reduced hours, and revised incentive pay plans. Align employee
goals with the company goals by using creative compensation
programs, so you can retain skilled employees for a quick start
in the next upturn. Companies that cripple themselves by cutting
into muscle will be slow out of the blocks when the new cycle
begins
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Remember the people
side of the business. Recognize that a down economy takes
a toll on the psyche, and make an effort to retain a positive
attitude. Realize that no downturn lasts forever, and that most
fears are never realized. And help your employee team recognize
the same realities. Don’t hide in your office – walk
around and talk with your workers. Make them true members of
your team, keep them informed, solicit their best ideas, and
help them see the light at the end of the tunnel.
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Don’t overreact
and don’t under react. Times of economic stress are
like driving a car in an ice storm: Jerk the steering wheel
one way or the other, and you can find yourself in an irreversible
spin. On the other hand, if you aren’t looking ahead far
enough or proceeding with increased caution, you won’t
be able to avoid the hazards in your path. And if you’re
just sitting still, you won’t be able to get moving in
time to avoid the hazards coming at you.
Karl Hardesty,
CPA, is the Area Partner for the Orange County, California office
of Tatum CFO Partners, LLP (www.tatumcfo.com).
Tatum CFO and its recently established Tatum CIO Partners offer
experienced partners as permanent, interim or project CFOs and
CIOs, respectively, for companies at all development stages. The
Atlanta-based firm has more than 400 CFO and CIO partners in 25
cities. Mr. Hardesty can be reached at (888) 643-7394 or by e-mail
at karl.hardesty@tatumcfo.com
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