Financial Clarity for Entrepreneurs

Surviving And Thriving In A Recession – Part 2

Part 1 of the series can be found here.

An impeding recession is a good time for a well-managed business to make gains against the competition or to shore up its foundation for quickly capitalizing on the economic recovery to come.

This is the time to look at your cost structure and do some judicious cost management.  Effective cost management can entail cost cutting, but can also mean taking the opportunity to get some good deals now while vendors are feeling nervous about their futures.  This is just one of a number of good reasons to be as financially strong as possible – if demand is down, the customer with the cash can negotiate the best deals.

Renegotiate Leases

If your commercial lease is nearing it’s end, and you are fairly sure you want to continue in the same location, now would be an excellent time to approach your landlord and negotiate a new lease. 

Recessions are almost always difficult times for commercial landlords and they want need to keep occupancy rates as high as possible.  You might be able to get a reduction in your rent or some other financial concessions such as reductions of CAM’s (common area maintenance) or elimination of annual rent escalators. 

It doesn’t cost you anything to ask, and if your current landlord isn’t willing to negotiate, some other landlord will. 

Even if you have as much as a year left on your current lease, don’t be shy about approaching your current landlord or a potential new landlord about your wishes.  If we’re going to have several (or more) tough months ahead, securing a tenant in advance is valuable to a commercial property owner.  Use it to your advantage.

Ask for Discounts from Vendors

As with landlords, your suppliers and other vendors will place a premium on acquiring and keeping good customers.  This is a good time to approach them about discounts and/or more favorable payment terms.  Remember, paying the same price, but paying later, is the same as getting a price cut.

And if your current vendors won’t reward your loyalty, find some who will.

You, however, should hesitate to do the same with your customers.  If you’ve done what you should to keep cash flow and profits strong in a recession, you have much less of a need to offer discounts and extended payment terms.

Keep Headcount to a Minimum

When times are good, like they’ve been for the last several years, headcount tends to creep up.  In the hurly-burly of trying to keep up with growth, the fastest and easiest-to-implement solution is often to hire new people. 

In addition, we often staff our organizations for our future needs and not so much for current conditions.  Even if you think your business is going to stay relatively level (or even grow slightly) during the next several months, chances are you’re over-staffed.

Spend some time thinking about what your real needs are to get what you need to get done.  Determine the roles that need to filled and match up your needs with your current roster.  Chances are you’ll find roles that are under-staffed and a whole lot more that are over-staffed.  I know it’s a cliche, but "right-sizing" is a valid approach.

Also, take this opportunity to assess the what’s and why’s of the things you do.  Unnecessary tasks tend to accumulate during the good times, and if you hear any of your people say (or, if you ever say) "That’s just the way we do things.", it’s time to dig deeper and see if you can eliminate unnecessary processes in your business.

Put Off Big Ticket Purchases

Even if you’ve identified a need for a significant big ticket purchase, it maybe better to put it off for awhile and conserve your cash.  Especially now when the next several months appear to be problematic.  You’d be better off waiting until the recession (or flat-growth period) is almost over.  Not only will you be able to negotiate a better deal when the economy looks bleakest, but you’ll hold onto your cash until just before a recovery.

How will you know when a recession is almost over?  That’s easy.  When every newspaper headline, TV news report and financial pundit is bemoaning the "worst economy since the Great Depression," the worst of it is probably over.  The convention wisdom has a consistent track record of being late.

Unless You Get an Irresistible Deal

Sometimes you’ll be presented with a deal that makes so much sense you can’t turn it down.  If you’ve stayed financially strong you’ll be able to take advantage of these opportunities.  If the deal is that good – take it!

Cut Your Salary

You may think that your personal compensation is a secret, but I can almost guarantee your employees have a fairly accurate picture of how much you make.  If you’re going to ask your people to make some sacrifices, you can too.

Although, it’s not really that much of a sacrifice.  OK, it’s not a sacrifice at all.  If your business is a pass-through entity (S Corp, LLC, partnership or un-incorporated sole proprietorship) any salary cut you take is just going to flow to the bottom line.  And, if you’re an S Corp, cutting your salary, and taking the additional profit, will reduce your payroll taxes – it’s actually a reverse sacrifice!

Coming up in Part 3 – What to do about marketing in a recession.

 

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