Greetings!
With all of the talk in the media of a looming recession I thought I would share some tips of how to manage profitability during turbulent times. For small businesses, recessions can mean big changes. Finding the balance between trimming costs and growing your business is tricky. Below are some tips to help you weather the storm ahead. Please feel free to e-mail me with your comments and any topics you would like to see in future newsletters. |
| MANAGING PROFITABILITY IN A RECESSION |
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We have all heard the news of a looming recession. How well is your business positioned to cope with a downturn in demand for your product or service? As your customers become more cost-conscious, you should too. Here are a few ideas on how to prepare your business for a recession:
1.)Put it on paper: and I don't mean on a cocktail napkin or back of an envelope-I am talking about creating a spreadsheet or using calculators and good old math. The only way you will be completely prepared is if you lay out exactly how your business will be impacted if your revenue declines by 5%, 10% or 50%. What is the impact on your profitability? What does is mean for your cash position? Print it out and put it somewhere where you can see it. Go back and adjust it as time goes by or your situation changes.
2.)Stash some cash: Recessions inevitably lead to declining revenue. What will happen to your cash position if your sales decline? Will you be able to pay your employees and your rent, let alone take a salary for yourself? Make sure you have some cash put away or access to lines of credit before you need them; it is critical to avoiding a cash crunch and liquidity issues when things get bad. Having access to the equivalent of 1-2 months (at least) of expenses is a good starting point-- more if your business is cyclical or volatile. (Read more) |
| COST CUTTING STRATEGIES FOR SMALL BUSINESS |
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Getting Smart about Spending
Entering a recession doesn't mean you have to go on a crash diet with respect to expenses. A few strategic cuts here and there can help free up cash in case things get tight. While increasing revenue is the fastest way to increase profitability, it is always a good idea to review costs periodically.
Small business owners are getting smart about spending. From hiring a CFO to keep track of costs, to outsourcing non-critical functions such as payroll and HR administration, to using technology to streamline operations, these businesses are focused on managing for the long-term. (read more) |
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| Next month:
If you really want to strategically cut costs with minimal impact to sales, you need to understand what customers or product lines are driving your profits. In the next issue of Straight to the Point we will be looking at how Customer and Product Line Profitability are key to focusing your efforts and driving growth. |
