For more than two years the news has been about layoffs, business closures and rising unemployment. With the economists saying the official recession is over, local businesses continue to be cautious and wary of increasing inventory and hiring new workers.
Rising oil prices and political unrest in the Middle East is complicating the economic recovery. Surprisingly, more than 50 percent of the Center for Economic Vitality’s customers are doing better than last year and some are even thriving. How is a business in Whatcom County supposed to respond to these obstacles? What can you do to survive and thrive in these challenging times?
Businesses that are thriving during this downturn have taken a step back, developed new strategies to increase cash flow, bring in new customers and get existing customers to shop more often.
Many businesses that did nothing and hoped that everything will work out have gone under. Doing nothing is not an option. Those that are surviving have made many significant changes to how they do business. Some have hunkered down and are taking a “wait and see” attitude. Others are reinventing themselves with new product lines, export expansion, improvements in operations, new banking relationships and even buying and selling their business units.
Coincidentally, companies that are thriving and surviving are all doing three fundamental things during these unpredictable, challenging times:
1) Manage cash. Cash is the most valuable asset your company has. Profits aren’t as important. Market share, increasing margins and sales growth aren’t as important as cash. Without cash you can’t pay your bills or buy new products, supplies or raw materials.
Most business owners have a hard time focusing on cash because they can’t predict when cash will be coming into their business, and it seems everyone wants some of their cash every day. What will sales be and when will people pay you? That is critical information you need to run your business.
You know when the bills are due and often struggle to meet your daily financial obligations. Know what your cash position is on a daily or at least weekly basis to manage this important asset.
So where does the cash go to run your business? If you are a manufacturer, distributor or retailer, cash is used to buy inventory and cover operating expenses such as rent, insurance, marketing, labor, taxes, etc.
Businesses spend cash (and invest in future profit) with the idea they will get a return on their investment of cash. We pay employees because we expect them to help us make money. We invest our cash in inventory and inventory is meant to be quickly bought and sold — turned back into cash. However, we often buy too much inventory or the wrong items and we create a situation were we have excess, slow moving inventory or worse, dead or obsolete inventory.
Inventory control is critical to good cash management. During these times, tighten your inventory control procedures and reduce your inventory levels, only buy what you know will sell or need. Consider buying inventory more often and in smaller quantities.
Accounts receivable is the other place cash goes in your business. Companies are tightening their AR collections and credit policies during these challenging times to reduce bad debt exposure and increase cash flow. If your terms are net 30 and people are paying you in 45 days, it is costing you cash. With a tumultuous economy more customers are delaying payments to better horde and manage their cash, so expect to have to react proactively. Increase your collection calls. Communicate quickly and consistently to identify problem accounts and react accordingly. Overall, focus on accounts receivable and your cash will flow. Ignore it and you will suffer.
2) Customer sales and service. Review projected sales and revise budgets appropriately. This is a good time to focus on increasing sales and customer service. It is amazing how motivating the loss of business is to getting out and proactively selling. So what can you do to increase sales?
I remember a vacation in the Virgin Islands where I saw firsthand the most successful way to attract more customers to your business. Jennifer and I were looking for a restaurant that served good local West Indies food and there were many to choose from. We had forgotten the guidebook and decided to ask a cab driver waiting for his next fare. Not only did he recommend an excellent place, he walked us to the restaurant three blocks away. He was friendly, helpful and his recommendation was superb.
What does this have to do with increasing sales in Bellingham? Key influencers. Know who the influencers are for your business and get them to be your sales force. Nothing works better than word of mouth referrals from influencers.
If you own a restaurant in town, do all the front office personnel at each hotel know about you? As a retailer, do the other businesses in your block know about you? As a tourist attraction, nightclub or bar, do the cab drivers know about you? Identify those people who can influence others to try your business and sales will increase. Local influencers might include city officials, trade associations, visitor bureau volunteers, all the businesses within a four block radius of you, bankers, CPAs, the chamber, CEV, SDBC, neighborhood leaders, etc.
After you get the customers in the door, wow them with exceptional customer service. Exceptional customer service is exceeding the customer’s expectations in providing the product or service. Exceptional customer service is memorable; people talk about it by telling others, thus driving sales to your business. Create an environment were exceptional customer service is the norm.
3) Planning. Never has there been a more important time to plan. Where is your business going and how will it get there?
What worked last year or even last month needs to be monitored against expectations, reviewed and analyzed. Review all expenses. Are there any areas of waste? Are there products, people, or services that aren’t performing? Develop a plan to address these problem areas and cut back expenditures today if needed. Review your lines of credit with the bank to determine if you have adequate resources to tide you over during challenging times.
Cost-cutting measures may be needed. Overall, develop a plan, implement your plan and monitor it on a regular basis. Adjust quickly if need be.
During challenging economic times there are no quick or easy answers, but if you manage your cash, focus on sales and service and plan, plan, plan, you will not only survive, your business will thrive.Tom Dorr is the director of the Center for Economic Vitality and regular columnist for The Bellingham Business Journal.