NOTE: I wrote this article at the middle of the worst recession experienced in generations.
What should I being doing now?
This is a question I have been fielding a lot lately by the “survivors” - the business owners who had sufficient cash and made the necessary adjustments to their business practices to survive the current recession thus far. Though folks in Washington, DC want you to believe the recession is officially over, it will be some time before a true recovery is felt by business owners and consumers alike.
So, what you should be doing now is position your company for that recovery. Here is some of the advice I have been giving my clients:
1. Plan and prepare for the new economy. This recession has rocked both businesses and consumers in a significant way. It will be a long while before they return to old spending habits. The businesses that will thrive in the new economy will have recognized this and adjusted their product offering and business practices accordingly. Strategic planning here is crucial. Identifying your business’s strength and weaknesses, and the external opportunities and threats (SWOT analysis) is an essential element to crafting your plan. As one would never fathom making a movie without a script, transforming your business for this new economy without a plan is equally absurd. I would caution this is not something you do on your own as it requires someone to challenge your assumptions to make certain you are not drinking your own bathwater by building a strategy around a company strength that really isn’t. There are too many examples of companies who have made this mistake and expeditiously and efficiently strategic planned themselves right over a cliff.
2. Continue to be conservative with cash. I recommend labeling all cash expenditures in one of three categories, (a) Value-added, (b) Non-value-added but necessary, (c) Non-value-added - scrutinizing the latter two more closely. Value-added expenses are those that directly contribute to the value and/or quality of the product or service (skilled employee, machining tools, raw material). Your customer would not hesitate to pay this line item if he/she saw it on an invoice. Non-value-added but necessary are expenses required to do business and thus cannot be eliminated (business license, tax preparation fees, business planning). Your customer will acknowledge and recognize these very limited expenditures as the cost of doing business. Non-valued-added are all cash expenditures which do not contribute to the quality or value of the product in the eyes of the customer (office furniture, company cars, copy paper, Blackberry). I am not suggesting you do not spend the cash - regardless of the label, but that you make a conscious decision about each expenditure knowing it burdens the cost of the product and/or the profitability of the company.
3. Resist the temptation to return to old habits and practices. These fundamental changes in spending habits by businesses and consumers are here to stay - at least for the foreseeable future. Personal savings and retirement accounts have been hit hard by this recession. Any extra money that is made as we emerge from this economic downturn will be used to re-supply those accounts not only to the levels they were but with additional padding. Having an actionable plan and holding yourself and employees accountable to that plan is the single biggest deterrent to returning to the less disciplined approach of running your business. The plan - especially when shared with all the employees - will also help set the new tone for the company both in the way of personal expectations and instilling confidence in the future.