How to Prepare for the Next Downturn

Times are good, aren’t they? Will they stay good forever? Of course not.

Back in the last downturn, what do you wish you had done to prepare for future tough years? The time to prepare for hard times is during good times. That’s now.

You don’t want to hunker down and miss out on opportunities now for fear of what may lie ahead. So how can you take advantage of profit and growth opportunities now while taking prudent steps for later safety?

  • Control your costs. This is not sexy, but it’s the single most important step. And it’s the opposite of what many business owners do. When cash is rolling in, they go on a spending spree.
  • Run a lean operation. Don’t get lax with routine expenditures. Weed out people who aren’t doing the job you need done. Stay on top of scheduling, and don’t have more on hand than you need for each part of the day or week.
  • Hire top quality people; train them well. Build a growth team, and nurture their loyalty. A strong, loyal growth team will also be a “get through tough times” team.
  • Build habits of productivity and profitability during good times, so they will carry over into tough times. Make sure your incentives require and reward productive, profitable operation.
  • Raise your prices. Don’t lag behind your competition.
  • Keep your customers happy and loyal by performing impeccably, and handling mistakes completely and openly.
  • Make sure everything you sell is profitable. Make sure your systems can tell you what is most and least profitable. Weed out unprofitable products or services that drag down your margin.
  • Build up business savings, made possible by raising prices, controlling costs and boosting profits.
  • Stay on top of opportunities. Innovate in your products, services, marketing, and operations. Don’t get trapped behind the innovation curve by sticking with lower margin offerings.
  • Seek counter-cyclical business niches. What do you sell that will stay strong through a downturn?
  • Grow into profitable niches, so that you have a stronger basis for profitable operation during a downturn. Don’t be caught trying to sustain an unprofitable operation when a downturn hits.

Surprise!  Your preparation for a down cycle looks very similar to growing during good times.

Want a set of questions to help you discover how to make these things happen in your business? Just ask me and I’ll email it to you.

Do Small Businesses Fail for Lack of Money?

Running out of money is often the endpoint of years of bad business decisions. Here’s how to avoid this fate.

I say it’s a myth.

cash management, cash flowBelieving this shifts attention away from the real problems. It’s like saying the leading cause of death is your heart stopping. Well, duh. But why did your heart stop? Most heart attacks hit people who haven’t been taking care of themselves for years.

Same with business. Running out of money is often the endpoint of years of bad decisions. For example:

Not watching the numbers closely. Not having financial statements you can understand, and not getting or reviewing statements in time. You should tell your bookkeeper/accountant exactly what numbers you need to track, when, and how you want them displayed. If they don’t give you what you want, replace them.

Not controlling costs. Keeping unnecessary payroll and other expenses. Some owners borrow money to avoid laying people off. During tough times, if you’re not ruthless with expenditures, you won’t have the reserves to take advantage of later opportunities.

Focusing on revenue instead of profitability, therefore not paying attention to the margin of jobs or sales. Taking any work. “I’ll make it up on volume.” “Maybe they’ll grow to be a big customer.” Don’t bet your business on these beliefs. Insist that every job must make a profit. Make sure you have systems that allow you to allocate costs to profit centers, so you can know the profitability of each thing you sell.

Under-pricing. Many small businesses try to meet the prices of large, well-capitalized competitors, rather than competing on unique services and features that set them apart and command higher prices. Set your prices to include your desired profit margin.

Not anticipating needed growth capital, so that a growth spurt causes a cash flow squeeze. It’s very difficult to grow relying on current cash flow. People criticize companies like Apple for amassing a huge cash hoard, without realizing that this is necessary to fund growth, innovation, and keeping options open.

Having the wrong kind of financing. Financing growth with a short-term line of credit that must be paid off each year, rather than with a 5- to 7-year term loan. And how many of us have financed growth on our credit card, thus saddling ourselves with interest payments that eat up the profit needed to repay the loan?

Not saving during good times, so that you have a fund for tough times. Too many owners would rather spend than save because they don’t want to pay taxes on the profits.

Not being “bankable.” For example, if you run your business to minimize taxable income, you’ll never get a bank loan. Try telling your banker that you really do have a profitable business, despite what your tax returns show. Take your banker to lunch, and ask what the bank will need from you in order to approve the loan you will need.

Not refining your business model to stay competitive and to meet the emerging needs of your customers. Just staying the same because it’s the easy thing to do. The old cliché, “Work on your business, not just in your business,” means that you as owner need to keep looking at opportunities, challenges, alliances, and strategies.

Ineffective marketing. If you don’t keep looking at what works, refining your offering and outreach, and dumping the rest, your business will slowly decline. Where can you get the most bang for your marketing buck? What ineffective things should you drop? How can you leverage your effort?

I’m sure you can think of others. If you address these problems in your business, you’ll never have to use “I ran out of money” as an excuse.

This is one of the lessons in How to Thrive in Tough Times—Lessons From Small Business Owners–my newest ebook, just posted on Amazon for Kindle, iPad, etc. for $2.99.

 

To Thrive, Banish Doom and Gloom

Don’t let yourself get discouraged by retelling the same old story about how bad things are.

“I let myself get discouraged by telling and retelling the same old story of woe about how bad things were. This was killing the business. During the plan workshop, I wrote it all out in excruciating detail, took one last look and then tore it up in little pieces. Now the slate is clean for the coming year. From now on, I’m talking about how we’re laying the groundwork for recovery.”

You do the same. And don’t hang with doom and gloomers; stick with the problem solvers.

“The last two years have been humbling. I saw how arrogant I’d been. We assumed that growth would just keep going. But when the phone stopped ringing, we had to relearn Marketing 101. For example, setting targets for number of new clients, and tactics how to bring them in. We should have been doing this all along.”

This is one of the lessons in How to Thrive in Tough Times—Lessons From Small Business Owners–my newest ebook, just posted on Amazon for Kindle, iPad, etc. for $2.99.

When All Else Fails, Try Marketing

I can’t tell you how many business owners I work with treat regular outreach to their best customers and prospects as a last option.

Marketing in 2008. *Ring! Ring!* “Hello! Joe’s Plumbing, this is Joe. How may we help you?…Sure! I think we could handle that. What about next Tuesday?…Thank you!” Joe scribbles on calendar. *Ring! Ring!* “Hello, Joe’s Plumbing.”

Marketing starting in 2009. . . . . . Joe sitting at desk twiddling his fingers. “Hum dee dum”…….. The phone is not ringing.

Marketing now. (Joe picks up phone and dials.) “Hi, Pat, this is Joe of Joe’s Plumbing. Haven’t talked with you in awhile. I just wanted to call and tell you how much we appreciate your business. We’re having a special! For the next 30 days, you can get ….”

Joe was really good at plumbing but he didn’t like marketing. But, at long last, he turned to his partner and said, “Everything else has failed. I guess we’ll have to try some marketing.”

Now, you may think this is an exaggeration, but I can’t tell you how many business owners I work with treat regular outreach to their best customers and prospects as a last option.

How about you?

Make some calls. Pick up the phone. Call some of your best customers and those you’d like to be working with.

Show your face. 80% of selling is just showing up. This is more important than all the rest of the high falutin’ stuff people tell you.

Ask, “Who’s buying?” Too often, we focus on who’s NOT buying.

Ask, “Where do we get the biggest bang for our marketing buck?”

Set a reachable target, and track your progress. Be accountable to someone else, so you don’t let it slip out of your consciousness.

If what you used to do doesn’t work, do something else. What will work best in this business climate to reach those you want to work with, and entice them to do business with you?

Want to see some more of this? How to Thrive in Tough Times—Lessons From Small Business Owners is my newest ebook, just posted on Amazon for Kindle, iPad, etc. for $2.99. Worth every cent!

Sustainable Business

Question on LinkedIn: What does sustainability mean for business?

MVH answer. Great question! Sustainability means using a resource so that it lasts and renews, doesn’t get used up, and doesn’t have a negative impact on its environment.

For a business, this would mean that it is self-sustaining and self-renewing.

It has to make a profit.

It has to provide support for its owners and employees, and contribute to their long-term well-being.

It must generate a surplus to carry it through tough times and to provide a fund for growth.

It must provide a benefit to its community of customers; otherwise it cannot operate profitably.

It must innovate (i.e., “evolve”) in order to stay competitive and keep attracting its customers.

It must be a vehicle for the creative energies of its owners and other key people, so that it will retain their interest.

A business—especially a small business—is a reflection of the skills and passions of the entrepreneur. It is his/her vehicle to provide value to the community of customers. The more it thrives, the more people are benefitted—customers and employees and other stakeholders.

In this way, a successful business does more than just sustain itself and the resources it draws upon. It becomes an increasing source of wealth. A community of such businesses builds a strong multiplier effect throughout the community and economy.

 

How to Thrive in Tough Times

14 quick lessons, based on the actions of successful small business owners I work with

14 quick lessons, based on the actions of successful small business owners I work with:

TO SURVIVE NOW

Banish doom and gloom

Keep your customers

Ask “Who’s buying?”

Go for cash flow

Don’t take unprofitable work

Watch your money like a hawk.

Collect money faster

Don’t keep unnecessary labor, but sustain your team

TO THRIVE LATER

Take care of yourself

Don’t stop paying yourself

Focus on running your business

Envision your recovery

Seek new opportunities

Ready your recovery fund

Inspire your team

Snap up resources

 

Details on these in my new ebook “How to Thrive in Tough Times—Lessons from Successful Business Owners.”

Small Businesses Are Growing Again!

I’m hearing good news from the owners I work with–from all kinds and sizes of businesses. Read what they are saying.

I’m hearing good news from the owners I work with–from all kinds and sizes of businesses. Here are a few things from our plan workshop participants:

  • “I have my business back! New clients are coming in. We’re getting referrals. Our energy is back up. Customers are calling and asking for more services. It’s back to the way it was before the downturn.
  • “It’s looking like a big year. Big projects of various types. We’re again looking for a second location to expand into.
  • “I’ve always self-financed. But this growth spurt will take some outside financing. Three of my customers have offered to put money in.”

I’m sharing these because too many of you are still playing the doom and gloom song. It’s time to snap out of it and start looking at how you can prepare to take advantage of the upswing. Here are a few more:

  • “This time last year I was nose down in production. Now I’ve got two good production managers—one for each shift—and I’m focusing on getting our new retail location ready for the April launch date.
  • “My client list is full. The danger is, I’ll get complacent and stop marketing.
  • “I took my nine managers offsite last Monday to brainstorm the details of opening our new place this spring. What I see is that the only way I can be a real CEO of my company is to work with them in this way and stay out of day-to-day management.
  • “They asked if I could give them a lower rate, since times are tough. I responded, ‘Sorry I just can’t do that.’ They talked for a minute, then responded, ‘Okay.’ Since then they’ve started giving me even more work—at my regular price!”

Want to see some more of this? How to Thrive in Tough Times—Lessons From Small Business Owners is my newest ebook, just posted on Amazon for Kindle, iPad, etc. for $2.99. Worth every cent!

How to Reinvent Your Business

Rules for reinventing your boring, poverty-inducing professional business.

My advice to a woman whose profession is no longer providing a decent living nor a passionate calling.

Think big, beyond your current profession. Ask how else can you apply your valuable skills.

Think concrete, beyond attractive generalities. Research specific opportunities with the orgs you listed.

Think now, not six months from now. Life is too short to spend another year on the poverty-inducing things you’ve moved past.

Think benefits you provide, beyond particular skills you have. People pay a pittance for skills; they pay well for the ability to produce desired results.

Fill in my Model of Success, pulling together the high demand skills you have. Where is the overlap of what you love doing, what you’re best at, and what big ambitious complex projects demand and will pay for?

Think big projects, where there’s plenty of money for you to get paid well. No more little projects

Think essential roles, big projects where your input is essential and will be well paid, not things where someone can say, Thanks, now go away.

Think lucrative. No more pro bono, or helping those who need you but can’t pay much, at least until you are on sound financial footing yourself.

Think partnering and piggybacking with others, so you’re not trying to create it alone.

Think hard-headed, so you don’t get talked out of good pay for value.

Think high rates, because people don’t value what they don’t pay for.

And never ever subsidize anybody wealthier than you are!

Cost of training when cash is tight

Are training costs an essential part of your budget? Do you allocate funds to training programs even if your revenues are lower than expected? Linked In question by Eric Saint-Guillain

I advise owners of small growing businesses. When their business is small, money is tight, there’s no budget for training. So one of three things happens:
— Training doesn’t happen, productivity suffers, mistakes get more expensive, good people are fired for not doing a job they haven’t had proper training for.
— Training happens ad hoc, but since it’s not budgeted for, the money is drawn from other sources, such as marketing–or profit.
— Training duty is assigned to people who are already working full tilt, so it’s not accorded the importance it deserves, and gets done haphazardly or grudgingly by people whose hearts are not in it.

It’s a “coming of age” marker for a young, growing business when the owner decides to allocate money and time to training, for all levels–workers, managers, and him/herself.

 My comments were aimed at companies with employees, but they are equally true for solopreneurs. As a consultant, I find that I get most of my training via:
— My industry association, Institute for Management Consultants (IMC USA)
— Webinars and other such events
— My clients! I learn a tremendous amount from them.

Here’s my sermon!

Training needs to be viewed as an investment in the increased profitability of the operation. Otherwise, why are you doing it? An owner who is a strategic planner sees training of valuable people in the same light as upgrading and maintaining valuable equipment.

It’s insane not to do it–even if money is tight. If you as executive let operations slide so that you cannot afford to take care of your most productive resources, then you should be fired. If you’re the owner, you’d better learn the lesson well, or you’ll soon be left behind by competitors, and lose everything you’ve put into the business.

Are we entering the Golden Age of Consulting? Yes or no.

Why the internet is the ideal medium for us, and why companies need us more than ever.

I’m discussing this with another veteran consultant, Janet Tokerud, and also on a LinkedIn forum. I’d like to hear your 2 cents. Here are a few factors:

YES

1. Companies can’t keep up with the firehose of change. Many have downsized their expertise, knowledge, and wisdom. They have to rely on outside consultants. We are the only ones with the mandate to stay on top of change, and the only ones who get paid enough to make this feasible.

2. We traffic in ideas and solutions and information. These are constructed of data and numbers and words. Thus the internet is the ideal medium for us. It connects us with each other anywhere in the world, as is happening on this forum this instant. We can communicate and publish with no middleman or gatekeeper. Internet forums like this provide the nexus for us to flourish and to provide value.

NO

1. Economic volatility puts us at the end of the tiger’s tail, where we are thrashed back and forth unpredictably. For example, my clients are small professional businesses that serve larger corporations that engage in the global market. When the markets hiccup, the corporations shudder, my clients can have a heart attack, and I can get dashed on the rocks. Where is the stability for us to get ahead?

2. Every year, more and more lucrative consulting tasks are outsourced across the world or programmed into an app. What will be left for us to do?

3. We lack the resources to innovate to keep up with the big players. We’re doomed to fall behind and slide into irrelevance, to be overtaken by the next newly-minted generation of PhDs and quants.

What’s your take on the outlook for independent knowledge professionals such as consultants?