It is Possible to Start a Profitable Company During a Recession

We may be in a pretty bad recession right now and have many questions as to the future. Questions that arise include: Can A Business be successful in this Recession? Is this a Good time to Start a Business? Should you be looking for business capital in this Recession? The simple answer is YES! (And no, I am not crazy!) This article will provide you real situation advice on how to be profitable and successful in this tough economic market, whether you have been in business a while or looking to start a new venture. You have to be careful how you operate and grow your business in a recession since the stakes are higher and mistakes costlier. Consider hiring an experienced Business Consultant to help you with your recession strategic planning. Experience counts for a lot in a recession!

Recession Survival Planning Ed Hess, author of “So, You Want to Start a Business? 8 Steps to Take Before Making the Leap”, says the first step is to “analyze why you’re in trouble, why you’re losing customers or why customers aren’t paying you fast enough.” I can’t agree more. You need to rework your Company’s Business Plan, Customer Plan and Supplier Plan to come up with a Survival Plan to cash-in on the opportunities a Recession provides. Maintain Cash Flow in a Down Economy…

1. Diversification: Dan Leader, Owner of Bread Alone, a wholesale and retail bakery with three outlets, used diversification to maintain his $7 Million in Annual Revenue. One third of the business is targeted on Retail Stores, one third on wholesale distributors and the other third concentrates on Mail Order and On-line Sales. This way if one sector is hit hard in an economic downturn, the business has two other Sectors to pick up the slack.
2. Contingency Plans: Just like you have an Emergency Fund in any good Personal Financial Plan, you should establish an Emergency Fund for your Business. Mr. Dennis Ceru, adjunct professor, Entrepreneurship and Business Strategy, Babson College, recommends planning for “rainy days”, putting aside 3 to 6 months operating capital and remuneration. Include in your Business and Strategic Planning an Emergency Plan for cutting costs. Another option during a down economic period is to send out invoices the day of a sale with cash discounts for early payment, say within a week. Waiting 30 days to send out invoices, during tight times, can be a strain on cash flows. Managing Cash during a downturn is crucial so your Budgeting Process in your Company’s Strategic Plan is critical. Other strategies could involve leasing verses buying or hire part-time labor verses full time employees. You just need to survive until things turn around, and you can implement recession strategies.

Cost and Cash Recession Management Strategies Cost and Cash Management are crucial during tough economic times. Here are some great Recession strategies to employ:

1. Expand your business into profitable areas without needing additional capital: Dan Leader of Bread Alone, a New York wholesale and retail bakery, sets aside one to two days a week to make sales calls on new customers that have multiple locations, which can yield $100,000 in annual business. Mr. Leader bestowed new wares offerings to Whole Foods, Zabars and the like which generated a surge in large orders.
2. Weed out pricey Customers: Analyze your Customers’ profitability, create a “perfect customer” profile and concentrate on that customer type. This will help you to be more profitable on a per customer basis, which is much less of a strain on Company cash flows during hard economic times. Concentrate on higher net profits per customer verses high volume sales with less profitable customers.
3. Examine your Technology Costs: Running an efficient business often centers around technology but be sure that you have what is necessary for a good rice during recessions. Being heavy on technology costs can be hard to justify when you are fighting to just retain customers. Do careful analysis of the necessity and effectiveness of the technology that is available, considering all options. Negotiate terms which you can easily meet or else look at alternative sources. You must be able to cash flow sustain your technology systems. You Technology Plan needs to consider things like: low acquisition cost per unit, high per unit profitability, platform flexibility are just some of the factors to consider.
4. Poor Employee Performance during tough economic times can’t be neglected. Ensure you have a suitable Performance and Control Mechanisms in place to proactively manage your human assets.
5. On the flip side, retain your talented people even though they may be expensive. Experience prevents mistakes, which can be very costly. Your most expensive employees to hold on to should be your most productive ones. They can pick up the slack during company cut-backs.
6. Analyze the payoff of your Marketing Dollars. What specific strategies are paying off? At what profitability? What is the ratio between marketing dollars spent and the resulting unit / customer profitability? Exploit your high profitability areas and refrain from generalized Marketing Strategies. Analyze your Marketing Plan to shape the best target, niche markets and the most profitable methods of selling to those targets.
7. To retain those highly talented, skilled, experienced people in recessionary times, you must continue to offer good benefits. Don’t cut your benefits to save on costs and expect your best people to stick with you when things are tough.

Chris Pentilla’s Article, “Employee Benefits in Today’s Economy”, in the January ’09 Entrepreneur Magazine, gave some great tips in retaining key employees:

1. Provide Breakfast at Staff meetings
2. Lunchtime training Sessions
3. Presenting employees CASH bonuses for meeting company goals
4. Employee cost-shared in-house day care
5. Matching Employee 401(K) Contributions even during business slow periods
6. Company principals tell the employees the Truth, sharing information about the Company’s Budget so Employees understand how they can positively affect the bottom-line.
7. During tough economic times a business owner may have to scale back perks but do it with the participation of company employees
8. Understanding how employees will react to changes in perks or benefits is key to a good Company Communications Plan
9. Offer Discount programs on a range of consumer trade goods for employees to offset benefit cuts the company has to make, such as having to increase the Co-pay on an Insurance Policy
10. Make a strong link between Perks and Performance: Work flexible hours; work-life balance initiatives; work at home, telecommute; and giving more responsibilities to a high achiever are some ways a Company can offer performers unique perks which they have earned.
11. Mentoring and training programs
12. Recognizing Volunteer work and back a company-wide volunteer event or cause
13. Strong ties with the Community
14. Gas discount cards

Please, At All Costs, Refrain from Across the Board Cost Cutting!

Cost cutting across the board is a blind and often ineffective measure. In fact, it is a desperate measure! And desperate strategies don’t very often work. Good cost management should actually be a day to day discipline which should be implemented throughout a company’s integral operations. Having a well thought out and implemented cost management system and process in place pays off in spades when tough times occur. Moreover, these cost management processes make you extra profitable and much more competitive during good economic times. A company’s cost management needs to be a vital part of its strategic planning, product development planning, market analysis and marketing strategies. With effective Survival and Cost Management Plans and Systems in place, your Company will be well situated to cash in on the limited availability of Business Capital in the Lending Marketplace. Tough economic circumstances really tighten lenders’ purse strings, so it is important to concentrate on Funding Strategies which can be successful in such conditions. If you can’t get enough or the right capital to grow in a recession, then cash and cost management becomes critically important. One feeds the other. Good cash and cost management leads to the capital markets opening up to your business, providing you sources of capital your competitors may be failing to obtain. Cash is king! (it really is)

See Also:

• Raising finance for your start-up business
• The Minimalist Guide to Developing A Successful Small Business
• Managing A Family Is A Lot Like Managing A Business
• 5 Tips for Managing Your Personal and Small Business Finances at the Same Time