I’ve been thinking about small business owners and what they are hoping and planning for this year. The past couple of months have brought a seemingly daily dose of hard knocks news with headlines dominated by the downturn in the global economy and this makes 85 percent of Americans believe that 2013 will be a year in which taxes in the United States will rise.
Small businesses are vulnerable in tough economic times. Under capitalized and with little experience coping with the legal and practical issues that come up during recession, many businesses fail as their profit margins drop and clients pay late — if at all.
Over the past years, many medium to small businesses have seen dramatics low down as consumers and business customers are buying less or not buying any thing at all. This of course put these businesses into financial trouble during the recession. Now that demand is beginning to rise, these businesses are having difficulty getting the additional financing they need to survive and compete.
The U.S. national debt has more than doubled from a little over $8 trillion to more than $16.4 trillion since Ben Bernanke became chairman of the Federal Reserve in 2006 which I believe U.S. is now the largest debtor nation in the history of the world and China is the largest creditor nation in the world, while I agree there will be setbacks China I believe will still overtake the United States as the number one economy. In short, as they continue to purchase and natural resources from all over the world to offset treasury losses they are positioning themselves to be a dominant global force.
The US still has an ace in the hole, which is the liberty of its people and the freedom to challenge its government. The American people have the ability to rise up and demand a more favorable environment in which to live and do business. Criticism of the US Government by its citizens is a cultural norm and expected.
Many small businesses fall on hard times when the economy slows down. While the broad trends impacting the business community create problems for large and small firms alike, small businesses tend to have less flexibility and less opportunity for downsizing during economic crises. There are many precautions a small business can take, however, to not only survive, but thrive during tough times.
Outsourcing can either be good or bad for the economy of United States. Some believe that this method is beneficial to the economy of the country for it lets Americans stay in higher managerial positions, increases the level of entrepreneurship in the country and allows companies to have fewer expenses. However other critics believe that outsourcing deprives Americans of career opportunities and it decreases federal spending and a company’s tax debt.
Actually, all of these people have a point regardless of which side they are in. Outsourcing has certainly decreased the number of available jobs in the country. Careers which require minimal skills are now difficult to find. This exact situation can pull the whole country down to extreme poverty simply because individuals won’t have money to spend without their jobs and tax revenues would soon decrease over time.
Even the technology and computer industry is currently suffering from the harmful effect of outsourcing. Fewer consumers would eventually lead to fewer manufacturers and would only increase the need for outsourcing for companies to come up with cheaper products that the public would be able to afford.
People who are promoting the use of outsourcing state that this technique helps boost the economy of other nations which implies that these countries would be able to pay their US debts. Political connections and product trade are also greatly enhanced with the use of this method.
However, there are a few US companies which abuse their foreign employees by providing them extremely low wages and letting them work even if they are not still of legal age. This situation must be stopped by the government to avoid political conflicts among other countries.
The key to getting through the recession will be to preserve cash and do everything you can to ensure you’ve got a solid banking situation. Businesses need to cut capital expenditure, avoid taking credit risks and make sure they’re not holding inventory, which could be susceptible to deflation. Every company will require exceptionally tight cash control and excellent forecasting systems. It’s absolutely essential that those forecasting systems are realistic. Managing the balance sheet rather than the profit and loss account will bring rewards.
Economic downturns challenge small business owners to consider three things:
• How to encourage reluctant customers to continue supporting the business
• How to reduce business expenditures
• How to prepare and reposition the business for success once the economy improves
During these times, the first thing small business owners should do is evaluate and adjust their thinking. They should always have a “lean and mean,” worst-case scenario strategy built into their plans to ensure they can survive.
Even when times are good, many small business owners face challenges such as meeting payroll, maintaining customers, and making long-range plans. These and other challenges are much worse during tough economic times.
Tough times will require small business owners to have the discipline to control costs, motivate employees, keep loyal customers, and recruit new customers. Unfortunately, some businesses will decline and some will go out of business. But others will grow. Companies that survive tough economic times don’t “hunker down.” Instead, they intensify their efforts to sell, sell, and sell! These businesses position themselves to thrive and grow after the restructuring is complete and the economy improves.
Business and Consumer Impacts
Small businesses feel the impact of an economic downturn as large firms lay off workers to adjust to the current crisis. These workers are also consumers, and they must adjust to the new economic reality by cutting spending on goods and services. As consumer demand decreases, businesses reduce their need for inventory and demand for labor. Even though the primary factors that led to the current economic crisis are the fallouts in the housing and financial markets, the effects are felt throughout the local, state, and national economies.
During economic downturns, consumers have less disposable income and are less likely to buy nonessential items. In tough economic times, consumers will spend hours looking for deals. They are savvy enough to know how to wait on sales to save money and find bargains wherever and whenever they can. Therefore, for small businesses to survive during these times, they will have to cut their prices to attract customers and make a profit. But cutting prices may not be feasible or make enough of an impact for some businesses. Since some small businesses have limited reserves and regularly operate at the margin, downsizing, restructuring, or going out of business may be the only options.
While this assessment is not what some would hope for or expect, the current economic crisis will create opportunities for the surviving businesses. For example, a major crisis tends to bring out the best in people and draw them closer together. As a small business, you should get to know your competitors and build relationships with them. In the unfortunate event they should go out of business in the future, those competitors are more likely to refer their customers to someone they know, like, and trust.
Partner with similar businesses in shared marketing in the local area. Substitute goods and services that you buy from out-of-state or outside the region with purchases from local or nearby vendors. This import substitution will benefit the local area and provide you with a great advertising tool, as well. With so much emphasis today on traceability and locally made or grown products, customers prefer and trust businesses that work with other companies in their hometown or state.
Finally, refer customers to other businesses in the area. This creates a win-win situation for everyone. For example, a customer walks into your store looking for an item that you do not have. To keep the retail dollars in town, refer the customer to a local competitor.
To take advantage of these and other opportunities, here are some priorities and strategies for small businesses to survive the current economic crisis.
1: Control Costs – Evaluate your cost of doing business. You may be able to reduce or eliminate some expenses, minimize the effects of the economic downturn, and survive and grow your business. Evaluate the fringe benefits package you offer your employees. These are costly, and reducing them will help to retain more of your profit.
Only cut costs or lower your prices if it won’t harm your business later. You can always lower your price, but you can’t always raise your price. Spend your time on what matters. If you provide health insurance for your employees, switch to a higher-deductible plan to cut costs without cutting benefits. Analyze your costs. Consider cutting out goods that provide only marginal benefit to your business, and increase sales of the rest.
If you have to cut personnel costs, offer to cut hours instead of having to lay off one or more of your employees. Many employees would rather cut back on hours to avoid layoffs. This will retain their loyalty and keep them in good spirits.
2: Improve Customer Service – Remember, customer service is a continuous process. Staying focused on serving existing customers and selling to new ones is important to surviving and thriving in these economic times. Make customer service an even greater priority by ensuring that your employees are well-trained and courteous to customers. This will give customers a reason to come back. Research shows that customers are more likely to tell a friend about a pleasant experience than an unpleasant one.
Don’t forget your customers whose economic hardships force them to stop shopping with you. A friendly phone call, a few words of encouragement, or a contribution to local charities to help them will be remembered long after the economic crisis is over.
When it comes to customer service, you should maintain a balance between personal transactions and automated transactions. In many businesses today, customer service seems to be a thing of the past.
3: Maintain Competitive Prices –As a small business, your prices should be competitive with other stores in the area. Customers often judge prices by one or two items or on price-sensitive items in smaller towns. If your prices are high on those items, the customer will assume that your prices are high on everything else in the store. But small businesses should not try to compete solely on price. Instead, demonstrate “value” through customer service and other priorities.
4: Attract Customers – Offer overstocked items as sale items or in “buy one, get one free” specials. Take care of your loyal customers. This will help you stay among the living in these economic times. Focus on retaining your loyal customers and attracting new customers to your business. Eighty percent of your business comes from 20 percent of your customers, so treat your best customers like royalty. Research suggests that it takes about six contacts before a sale occurs. Give customers bigger discounts for cash payments if you do not already.
5: Improve Product Knowledge – As a small business, you must become more knowledgeable about the products you sell in the market. This will help you to better differentiate your product or service from competitors. If you don’t know and understand your customers, it will be very difficult to sell your product or service to them. Customer surveys are a good way to get to know your customers. Know your industry so you can stay on top of the latest trends and maximize your bottom line.
6: Improve Employee Training –Evaluate your workforce needs. Small businesses tend to have one person doing several tasks; the person may be great at some and not so great at others. Training your employees well is critical to the success of your business. When economic times get worse, you don’t want to hire and train new employees over and over again.
7: Improve Employee Motivation – Invest in and take care of your employees and customers now, and you will be in a good position when things turn around. Motivating your employees with incentives, such as a day off with pay or employee of the month honors, can create an environment of friendly competition.
8: Build Financial Reserves – Keep a sufficient financial reserve. Some call it a “war chest” or “rainy day fund.” Keeping some profits aside to help you through cash flow deficits will give you more flexibility to operate your business during tough economic times. Create a financial reserve by establishing a line of credit before you need it. This way if you have an unexpected delay of cash in your business, your operations will continue to run smoothly until the economy turns around. Keep your funds as liquid as possible and build up capital reserves.
9: Maintain Community Engagement – Continue to stay engaged in the community. Don’t turn away solicitors for charity functions; instead offer gift certificates to your store for door prizes. Keep your business’s name out there anyway you can. Share any cost-savings with your customers in the form of lower prices.
10: Manage Inventory –Keep inventory to a minimum. Monitor and maintain inventory of those items that are in high demand.
11: Advertise – Continue to advertise to help your business grow, let people know you are still in business, and maintain your market share. These are the primary reasons large companies advertise. If you must cut costs, do not cut advertising. You must keep your name and the service you provide in the minds of the consumer.
12: Manage Accounts Receivables – Revisit your accounts receivables regularly. This may mean sending out invoices more frequently than you have done in the past.
13: Improve Business Looks –Improve the general appearance and cleanliness of your business so it looks nice and inviting to customers. Keep your storefront clean and windows repaired, and change out your display windows as much as possible. Customers will notice if you don’t take care of your store.
14: Business Signs –Make sure your business signs are easy to read so prospective customers can find you.
15: Be Available – If you want customers, you need to be open when your customers might come. Don’t lock the doors at 5 p.m. This could pose problems for local customers, especially those who work out of town.
16: Work with Vendors – Reevaluate your contracts with suppliers who are likely experiencing similar economic problems. They may be open to negotiating a better price to keep your business. If your current supplier won’t renegotiate your price, don’t hesitate to look for other suppliers. Negotiate better credit terms and discounts with lenders and suppliers.
17: Improve Product Offering –Diversify the goods and services you offer and become a one-stop shopping experience. • Offer good, quality merchandise. Don’t stock items that nobody wants.
18: Assess Business Status – Assess where your business is in the current economic crisis. If your business is suffering, ask questions like: How much have I lost since the last calendar year or the last quarter? How rapidly did the economic downturn affect you? How are your cash reserves and your available credit line?
During these times, small businesses must think critically and act strategically to stay in business. Economic downturns affect small businesses more than larger businesses, but they do not have to be disastrous. Small business owners should remember that at some point things will improve. Few recessions in the United States have lasted more than 2 years, so there is room for optimism.
Even though the current and future economic outlook is bleak, some small businesses will survive and thrive in this environment. Those who do will contain costs, control inventory, retain current customers, recruit new customers, improve customer service, be creative and innovative, and continue to advertise in these tough times.
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