Getting Ahead in a Slowing Economy
This isn't a column I want to write -- or you want to read. I'd like to be writing about predictions of another year of a booming economy, giving you advice on how to handle all the business you'll have and the money you'll make. But the stratospheric economic growth we've had the last few years is coming down to earth, and experts predict an uncertain business environment.
As I wrote in a recent column, in a slowing economy the number of new businesses formed actually INCREASES, and I gave advice for those starting out. Here I offer tips on surviving and thriving in a slow economy for those already running a business:
- Increase your available credit NOW. Don't expect your mailbox to keep being stuffed with offers for low-interest credit cards. Banks and lending institutions are already tightening their standards. So don't wait -- if you have good credit and are disciplined about using it, increase or establish credit lines at banks, ask for higher limits on credit cards, or apply for additional cards.
- Reduce debt. Just because you have a lot of credit doesn't mean you should use it. If you now have decent cash flow and income, use them to reduce existing debt rather than increasing expeditures. It will be easier to meet your monthly obligations in slower times if you don't have heavy debts.
- Look for alternatives to permanent hiring. If you have more business than you can handle now -- and many of us do -- you don't want to lose it by being short staffed. But you also don't want to hire more permanent staff than you can afford. Seek other options -- overtime, temporary workers, outsourcers.
- Lock in longer-term contracts with customers. Look for ways to increase your predictable income base by entering into ongoing contracts with good customers. Be willing to make concessions on price in return for longer-term income security, so both you and they will be in a better position if money gets tighter.
- Avoid long-term contracts as a customer yourself. You want to have the most flexibility in your own budget, so avoid tying yourself down if possible. One exception is when the company for which you are a customer is giving you financing for an essential business need (such as equipment financing). Remember, ALL credit is likely to get tighter, so this is like locking in a loan now.
- Maintain your marketing budget. In a downturn, the first thing many companies cut is marketing -- advertising, exhibiting at trade shows, entertaining customers. This is not the right thing to do -- and it's exactly what your competitors will do, giving you an opportunity to gain new business. Studies indicate that companies that maintain marketing budgets during leaner times actually increase their market share.
- Reduce "discretionary spending" and start saving. Money, money, money. Those who will survive and thrive in a recession are those who have sufficient cash to make it through slow times. Now may not be the time to remodel your offices or take the staff to Tahiti.
- Diversify your customer base. How "recession-proof" is your market? Some industries are particularly sensitive to economic fluctuations. If your market is composed entirely of vulnerable companies, you're going to be vulnerable too. Some customers, regardless of industry, may fall on hard times when business slows. Try securing a broader mix of customers so that their problems don't become your problems.
- Get over it. If you've only been in business a short while, you may think the last few years were "normal." They weren't. Even with talk of a "new economy," the reality is that business cycles go down as well as up; you can't always expect customers or financing sources to be clamoring for you.
The next few years may not be as euphoric as the last few, but if you keep your wits about you (and some extra cash in the bank), you should still be able to survive and thrive. And I'll be right here with you.
Rhonda Abrams writes a widely read column on entrepreneurship and small business. Abrams is also the author of the well-regarded business plan guide, The Successful Business Plan: Secrets and Strategies. She has started and built three companies, including her publishing company, Running 'R' Media, and her newest enterprise, RhondaWorks, which plans to offer a comprehensive online interactive business planning center. Visit Abrams at www.RhondaOnline.com.
Copyright © 2000 Rhonda Abrams
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