Managing Your Business in a Down Market

Suzanna De Baca -- Expert Business Source, 4/2/2008 12:15:00 PM

“I am just slashing costs right and left!” said a business owner client of mine recently, referring to her response to the economic downturn.  When confronting uncertain markets, our automatic response may be to take action quickly, but is cutting expenses across the board the right thing to do?

With experts predicting that the economy will be slow for the foreseeable future, how do react?  You’ve got a business to run today, but the decisions you make now will determine how well your company performs far into the future.  In crunch time, great managers don’t panic but instead use the time to take a hard look at how to make the business even better.

Just as I often advise readers not to impulsively sell underperforming investments in down markets until they’ve thoroughly evaluated the situation, I propose that business owners and managers take a deep breath and perform some analysis before cutting expenses or making other reactionary decisions.

Discretionary versus non-discretionary spending?

In tough times, you must take a critical look at your budget, but it can be a mistake to immediately cut discretionary spending.  The temptation may be to reduce marketing, advertising, product development, or public relations expenses, but depending on your industry, this activity could backfire.  Keeping your sales pipeline full now may mean the difference between success and failure later. In order to stay strong, your brand and your outreach may be less optional than you think. If you’re on the edge of survival, by all means cut; but if you can squeeze by while continuing these critical functions you may prevent future problems if the downturn continues. Alternatively, think of more innovative, less expensive ways to get those jobs done.

Accounting is also Royalty.

More than ever, understanding your financial statements is key. You need to have a strong grasp on your balance sheet and be very attentive to your P&L and budgets.  Getting good data, preparing accurate reports and checking actuals versus budgets frequently will allow you to adjust.  Use this time to strengthen your reporting systems.  If you know exactly where each penny is going, and where each is coming from, it will be easier to make decisions on where to maintain or keep expenses. 

The importance of good accounting or record keeping systems is underscored by a story the same client I mentioned before told me.  She said that in improving their bookkeeping systems, she and her partner discovered a number of invoices that had never been sent to clients.  In a good market, having receivables sitting around is bad; in a down market, it can be disastrous, yet it happens in companies large and small.  If you don’t know what you have outstanding, you are not able to get a jump on collecting.  If you don’t know what your true profitability measures are, it is impossible to improve them.  Use this time to do some tough record keeping triage.  Identify your problems or weaknesses, fix them, and when the economy picks up, you’ll be stronger for it.

Be even better.

It is not much fun doing business in a bad economy. For some, the stress can lead to impulsive, rather than strategic, decision making.  If you are committed to quality and continued excellence, consider using this downturn as an opportunity to scrutinize your business.  Be strategic in making difficult decisions in cutting costs, improving strategy, enhancing systems, or communicating with clients, customers, vendors, or employees.  Great owners and managers use every chance to become even better.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.