5 ideas to help you prepare for slow times
Slow times. Every business has them. The question is: How do you cope with them? Many believe one of the best times to prepare is when business is abundant, so you can weather the lean times.
Slow times topped the list of situations business owners said they were unprepared for when they started out, according to our recent “Pay It Forward” survey of more than 500 small business owners. Four out of 10 business owners said they were unprepared for slow times when they started their own business.
Many economic sectors — retail, construction, tourism, agriculture, for example — ebb and flow with the seasons. Just look at hotel occupancy rates in San Francisco month by month over the last few years. Historically, occupancy rates peak above 90% in August, and then plummet through the fall and winter to the low point in December and January of under 70%.
Summer may be great for the tourism industry, but many other sectors of the economy are not so lucky. The National Center for the Middle Market at Ohio State University recently posted seven useful tips for dealing with the summer doldrums, including focusing on product development, facilities improvements, and team building to keep your employees engaged during down times. Don’t forget slow times are also great for putting on your strategic hat. (What does your SMART plan look like?)
Here are five ideas that may help your business plan for slow times:Cash flow: Whether a slowdown is short-lived or prolonged, I always encourage business owners to focus on cash flow. Cash management is the nuts-and-bolts of a business’s finances. How quickly is a business collecting from customers for goods and services provided? Managing accounts receivable may not be a priority during good times when a business is flush with cash, but during down times delays may kill a business. Maintaining good accounts receivable practices during busy times may help a business manage cash flow more effectively during the slow times.
When business is light, it may be advantageous to devote extra energy to collections. On the other side of the cash flow equation is the money going out. Ask yourself, are you optimizing payment terms that your vendors and suppliers offer? If a vendor provides 90-day invoicing, you may legitimately take advantage of this period to improve cash flow.Fixed vs. variable: Understanding fixed costs versus variable costs in a business is important, as it may help an owner develop tactics for coping with slow times by recognizing when to scale back expenditures. A mortgage on a commercial property, for example, is a fixed cost that remains the same month after month. Whether business is strong or sluggish, that payment will come due until the mortgage is paid off. Then there are variable costs — the electricity bill and other utilities, contracted services, and staffing — that a business may have more control over and, in some cases, may be reduced or increased as needed from month to month. Staffing: One of the toughest things to do in business is lay off employees. Yet, effective business owners manage with realistic staffing needs in mind. Tracking sales and making projections may help an owner staff appropriately during peak and slow seasons. It can also help ensure demand is met, and the right level of service customers expect is provided. Maybe some positions can be left vacant leading into a slow season, and layoffs may be avoided.
Temporary help on less critical positions may also help a business manage seasonality; there are a lot of staffing companies that may be able to help with specific needs. Or maybe a quality contractor or third-party vendor may pick up the slack during busy periods? All these suggestions may help provide a small business owner with some flexibility to manage expenses when there are changes in the economy, industry or individual business.The “R” word: The most dreaded slowdown is, of course, a recession — when the economy contracts. This is when a Slow Times Plan may prove particularly valuable. I’ve seen time and again that when sales decline smart business owners stay ahead of the deceleration. They anticipate lower revenue and move quickly to cut expenses so that costs stay in line with revenue. Even businesses that have conserved cash in prosperous times would do well to scale back expenses as business slows. This is particularly important at the onset of a recession, when it may be difficult to project the depth or length of the slowdown. Credit line: A line of credit may be an effective tool for managing through a slowdown, helping a business cover operating expenses rather than having to cut costs or staff. It’s almost always best to set up a line of credit during flush times, since lenders review the business’s revenue and expense management trends during the credit review process. Declining sales may make it difficult to qualify for credit. Keeping a line of credit available so a business may be in a position to take advantage of trade discounts, business opportunities, or help ride out a downturn can’t hurt, either.
Ups and downs are natural in almost every business. The key is to prepare during the good times. Experts have been offering guidance on how to cope with downturns since the dawn of time. As Joseph advised the Pharaoh in Genesis, take a fifth of the harvest during the good years to be used during the lean years “so that the country may not be ruined by the famine.”
Do you have a tip for preparing for slow times?