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To survive lean times ahead, small businesses must plan now

November 24, 2008
Q: Last year was a very profitable one for my company and 2008 started well but has slowed considerably. Next year is looking bleak. What can I do to minimize the down economy on my business?

A: Plan for the worst while being attuned to what is happening in your industry, and to your customers.

That means defining and preparing contingency plans you can implement depending on how much your revenue and profit drop. The focus areas are those that have the greatest expense, including personnel costs and discretionary expenditures that get built into the business during good times.

Do this with the minimum of emotion. Implementing the plan means letting people go -- always tough, but particularly so when there are fewer options for replacement employment. Make the first cuts in areas that can survive with fewer people. Determine your method for cutting back: longevity/seniority, capability/skill, attitude or some combination of all three. The important thing is to develop your plan now, put it in the drawer and pull it out when and if it's necessary. Then follow through.

The next round of cuts will be in the organizational muscle. These are the most painful if you are letting go strong performers and loyal, long-term employees. The key is to view these steps as necessary for the company's survival. If these steps are successful, the business will keep operating and jobs will be saved. If you waffle and keep telling yourself, "I'll wait one more month before taking action," you are likely to put your company in jeopardy.

With respect to discretionary expenditures, be ruthless in looking at every line item on your income statement. Find out what you are spending that can be cut now and what can be cut quickly if necessary. Plenty of "fat" creeps into any company's diet during good times. Shed it as soon as possible.

After attacking your personnel costs and other expenditures, make sure that any expansion efforts are well thought out and that you can afford them. New plants, products, joint ventures, etc. always take longer to produce results than planned. If you don't have the cash and staying power, put them on hold.

And speaking of cash, make sure you fully understand what is going on with your banking relationship and with your bank. This is a confusing and frightening time in the financial industry -- both for borrowers and for bankers. Make sure you know how your bank views your company and become aware of any difficulties your bank might be facing.

My advice is to meet often with your banker and keep her/him up to speed on what is happening with your company. Bankers hate surprises, especially in today's economic environment. Don't hesitate to ask for a meeting with your banker's boss to get further assurance or clarity. Remember, banks are finding it necessary to adapt their business models and you don't want to be left out in the cold when their change means they no longer want to lend to your industry or provide the type of financing you have been using.

Finally, keep talking with your customers. Understand their view of the economy and the business challenges they are facing. A client recently related he felt like a beggar when asking his customers about possible jobs coming up. They all told him very little was in the pipeline. Better to know this now than proceeding under the assumption that new work is just around the corner.

Forewarned is forearmed. Take the critical actions needed to remain profitable or reduce your costs. When an economic downturn hits, no expense is sacred.
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Clegg is the president of CEO Partners, a consulting firm serving owner-managed businesses. He can be reached at 450-0262 or dclegg@comcast.net.
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