Business Owners Toolbox Blog Discussions and articles to help the small business owner solve the challenges they face as they grow their business.

People say, “A rising tide lifts all ships.” Except, of course, for the ones that have sunk! As the recovery kicks in the companies that have gone under will not be coming back.

Many recent business failures I’ve seen are due to other issues that are exacerbated by a downturn in sales, even though the sales decline was not enough to knock them out.

• They expanded too much in recent years, then with business downturn they could not sustain their high overhead, even though sales still seemed pretty good.

• The owner/founder is nearing retirement and decides it’s just not worth the hassle to continue, and closes the doors.

• Poor management and administrative practices that worked okay during good times became much more apparent during bad times.

• Partners have a falling out, partly over needed tough money decisions.

• During boom times, companies took any project that came along, and never developed a strategic focus. In down times, lacking this clear image in customers’ minds makes their marketing task much more difficult.

Here’s how some of the small business owners I work with have managed to pull through the last few months:

Savings. “Over the years, every time we got a big job, I put some money away. That savings saw me through. During the first quarter, sales were terrible–and we can only cut back staff and overhead so much. Without that savings to dip into, I might not have made it.” Custom interiors

Hire sales rep. “Our new sales person has been with us a couple of months now, and she’s beginning to bring in the business. Before, selling all fell on me. She’s best at bringing new people in, then I can concentrate on doing the proposals and closing the deals.” Business insurance

Pay cuts. “At the beginning of the year, we cut everybody’s pay 20%, including mine. Everybody was okay with it. Then, a couple of months later, we cut it another 20%. We were down to 60% pay—working 3 days per week. But my best people stayed with me. And now, orders are trickling in again. With every big deposit check, I’m increasing hours.” Contract design firm

Develop new products. “Business has been very slow this spring. But ’08 was strong, so we had a cushion. My partner and I decided to take a couple of ‘retreats’ from the business and develop new materials. We never had time to get this done before.” Consulting firm

Focus on healthy part. “Our wholesale business has been way down. So we put the focus on our retail shop. We created promotions such as special products and live music on Saturdays. Retail is more profitable than wholesale (even though it has less growth potential). So, it has carried us throughout this down time. We’re actually more profitable now than we were a year ago. The rule for us is ‘go with what works.’” Specialty foods manufacturer

Diversify. “Smartest move we made was to hire a guy in 2007 to focus on commercial moves so we weren’t totally dependent on residential. Beyond that, we had steady military business, plus storage. So, diversification has saved us.” Moving and storage

Cut to the bone. “I kept cutting back on our crews until we were down to just one—but it was composed of all our best people. Even so, I was only about one payroll cycle from being broke. Now, some of those jobs that have been orbiting around for months are beginning to land. As I build up our crews again, there are certain people I’m just not bringing back.” Contractor

Reduce prices. “We cut prices 40%. This attracted a lot of people who were otherwise just not signing up. It wasn’t very profitable, but it allowed us to keep the doors open. I’ll continue this through June.” Training company

Does this list stimulate any ideas? It’s not too late for you to put some of these in place in your own business.

Lessons from Successful Business Owners

To Survive Now
Keep your customers
Protect your cash
Sustain your team
Focus your head

To Thrive Later
Seek new opportunities
Ready your recovery fund
Inspire your team
Envision your recovery
Snap up resources

In the business media, it’s all doom and gloom and hunker down. Yet many small businesses are doing well. They are taking measures to protect themselves, yet making money and preparing for recovery.

Here are a few things owners I work with are doing right now–in marketing, customer service, finances, staffing, and operations. You can apply many of these ideas to your business tomorrow.

A year from now, the people thriving will be those who plan for recovery now.

Lesson #1. Banish “doom and gloom” mentality. At each Business Group meeting, members say, “Things aren’t going too badly. But we constantly hear all these horror stories on TV. We’re running scared. When will it hit us?” If you’re on your own, it can defeat you. Don’t hang with doom and gloomers; stick with the problem solvers.

Lesson #2. Keep you current customers. Meet with them individually. “How can we save you money? Here’s a suggestion how we can keep giving you what’s most important to you now, and cut back on these other items for now.” “So that your expenses are predictable, we’d like to shift from time and materials to set a monthly fee.”

Lesson #3. Ask, “Who’s buying?” Too often, we focus on who’s NOT buying. Sure, your big customers from 2006 are long gone. So raise your antennas and see who IS buying what you offer, and how you can refine what you offer to meet their needs and desires.

Lesson #4. Go for cash flow. Ask yourself, “What’s the shortest route to cash-generating sales?” Create a table with two columns. In the left column, write down all the marketing actions you do—or could do. In the next column, write how long it takes for each of these to pay off: “One week,” “a month,” “3 months,” “a year” and so on. Go after fast payoffs to generate cash flow now. This can give you financial breathing space to focus on long lead-time strategic initiatives. I call this “marketing triage.”

Lesson #5. Don’t take on unprofitable work. During the last downturn, a BG member watched with dismay as he lost job after job to desperate competitors. As recovery gained momentum, he was swamped with business from people who had previously gone elsewhere. Why? “You are the only one left!” they told him. Lesson: lowballers go belly up.

Lesson #6. Don’t keep unnecessary labor. 1st, let go of people who aren’t cutting it. 2nd, be frank with your good people. “Times are tough, but we can pull through it if we share the pain. We need to cut hours by 20%. If possible, I’ll make it up to you when the market recovers.” We’re afraid they’ll quit but where will they go?

Lesson #7. Envision your recovery. How do you want it to be in a year? Let your imagination run free and visualize without blinders. Don’t make decisions with long-term implications based on near-term negative outlook.

Lesson #8. Focus on running your business. Get yourself out of the minutiae. Do the things that are the most important to preserve health and stay forward-focused. Hand off the other stuff, or let it go for now.

Lesson #9. Watch your money like a hawk. Where can you save money without sacrifice? Look at each line item on your Profit & Loss statement. What outside services do you pay for that you use infrequently or not at all? Call your vendors and ask how they could save you some money. This includes your insurance carriers. The phone company. Yellow pages. Landlord.

Lesson #10. Collect money faster. Stay on top of your accounts receivable. Give an extra collection effort. Encourage payment by credit card to your merchant account.

Lesson #11. Don’t stop paying yourself. Pay yourself first! You are the most important person working for your company.

Lesson #12. Lay groundwork for recovery. At the end of a downturn is the best time to add needed people and resources that can help take you to the next peak. Locations, people, customers.