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How to Navigate Your Business Through the Choppy Waters of a Declining Economy
The media continues to debate the issue of whether we are currently in a recession. Whether we are or not is academic, since the economy currently seems to be stagnant, the financial markets are volatile, and real estate is in crisis. These tough times affect different businesses in different ways, and weathering tough times requires thoughtful planning. What may work for one kind of business may not necessarily be the most effective approach for another.
Individuals may put off major purchases like a new house, a car, or an appliance, but they will invest in necessary repairs and maintenance. Small businesses, by contrast, cannot afford to just maintain, they must continue to upgrade equipment and systems and make capital expenditures, just to keep the business operating and remain competitive.
The natural response for businesses feeling the pinch is to reduce expenses. A recent poll of 500,000 American businesses conducted by infousapoll.com revealed that 63% of all businesses surveyed are planning on reducing expenses. The dilemma is how and where to reduce expenses without sacrificing either the quality of services or production as a result of cost cutting.
Conventional wisdom is that businesses must carefully monitor expenses during tough times. However, by drastically reducing expenses in too many areas, a company may not be able to grow when things turn around and conditions improve. The difficulty is striking a proper balance.
Businesses should continue to develop new contacts and sources of business as well as luring in new customers. Also, businesses cannot afford to get so caught up in the culture of the economic downturn that they fail to take care of existing clients and customers. They must stay in contact with their network and referral sources on a regular basis and make extra efforts to upgrade service to existing customers. Using the internet effectively is a very good way to stay in touch with clients and customers, by sending out "client alerts" and newsletters.
Other measures that businesses should consider taking are:
- OFFER CUSTOMER INCENTIVES, BUT DON'T LOWER PRICES JUST TO INCREASE VOLUME: Slashing prices and fees may generate quick cash, but it will also slash the bottom line. When offered lower prices, regular customers will expect prices to remain low; and they will come to expect this even when things return to normal. Instead, offer existing customers incentives or one-time discounts as a way of saying, "thank you for your loyalty,” without having to make a permanent reduction.
- RENEGOTIATE WITH SUPPLIERS. Even though you may not cut prices drastically, does not mean others won't. During a downturn in the economy, everyone feels the pressure of competition; and just as you want to make an effort to keep existing clients happy, so will your suppliers. Go out and find the lowest price, and then ask your regular contact to match it.
- KEEP YOUR EMPLOYEES HAPPY. A dedicated and loyal employee, who has assurances of job security and other benefits, will work just as hard during a difficult period. It costs you nothing to say "well done" or "thanks for a great job.” Also, little benefits like bringing in pizza from time to time, or hosting a company happy hour or picnic keep morale high.
How is your business coping? Has the downturn and "bunker mentality" portrayed in the media hurt you or can your business find ways to capitalize on bad economic times? Let us hear your thoughts and we will publish them in the next edition.