Is a Recession Coming? - September 9, 2008, 11:59 am

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Is a Recession Coming?Â

As the economy changes, business growth may become more difficult, so it's essential that entrepreneurs hunker down and initiate those moves necessary to stabilize their business in preparation for an economic turndown.

The secret to weathering a nasty economic storm is early preparation. Diversify your customer base, free up cash flow and cut costs where ever you can.

Here are a few suggestions that may help you to prepare your business no matter what the economic climate.

Cut costs. Have a look at your business and figure out where you could save. If three employees are doing the job of one, you may need to consider job cuts. Additionally, if you have two product lines and one is successful while the other one isn't, consider selling off that division or discontinue selling the weaker products. When times are tough, it's best to focus on core markets and spend money in those areas, not in areas that haven't been more profitable.

Ratchet down inventory. During an economic downturn, the last thing you'll want to do is get stuck with shelves of needless inventory. For example, if spending $30,000 a year on fringe inventory isn't necessary, make sure your purchase orders reflect that. For a better idea of what you'll need as the year progresses, keep an eye on leading consumer indicators. Also, establish inventory target levels that are consistent with current sales and make sure that the sales and purchasing departments are talking.

Maintain prices. You may be tempted to slash prices to free up cash flow but this exercise can be very costly. Sure, you'll sell products but you'll also cut your profit margins and likely dilute your brand in the process. Plus, if customers decide to buy again from you in the future they may expect similar discounts.

Reserve discounts. Don't go into a discounting war since you don't want to dilute your brand's value and you especially don't want to start competing on price with Big Box discounters. It is advisable to tread lightly when you're considering offering discounts. It may be worthwhile to review your inventory levels on old and outdated models as this inventory can be used to promote which can help maintain your market visibility and cash flow. Be sure to reserve the special offering for current or repeat customers first by means of a special in-store offer announced through your data base and then to the public in general. Â This approach will tend to breed customer/client loyalty without diminishing your brand's value.

Focus on service like never before. While expanding your business into additional markets you may create new avenues for growth, but at the same time, many small-business owners should focus on their existing customers and clients for a boost in revenue. You may consider using programs that can help maintain your profile while building solid customer relationships. Remember, the cost is in the acquisition the profit is in the retention.

Invest in employees. When the going gets tough, the employees you have will be your productivity all-stars. Make boosting productivity — within reason, of course — a focal point. For those who rise to the top, be sure to reward them accordingly. A worthwhile rewards and recognition program will provide a more solid employee/ employer relationship that can be measured in loyalty and long term employees. Consider offering vacations or time off, which can be great incentives at a lower cost.

Free up cash flow. While you're attempting to cut costs and grow sales be sure to free up your business's cash flow by asking to have payments to suppliers extended, or if you have old debts, call them in. Having a good amount of cash on hand, especially in light of a possible credit crunch, will help you do everything from make payroll, pay vendors and spend on marketing campaigns that may grow future business.

Renegotiate contracts. If a contract, a lease or other obligation will soon be up for renewal, try to negotiate lower prices. If you don't need all of the space currently being used, consider paring down.

Final Words. By focusing on these suggestions to strengthen your business from the inside, you'll be better prepared in the event of a downturn in the economy. Focus on the actions that you can adopt now and consider these moves as preventive maintenance for your business. You'll be glad you did.

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