October 08, 2008, 3:29 PM — The current upheaval in the financial sector has many of us longing for the days when we were worrying only about an impending recession. As the U.S. economy continues its spiral to rock bottom and as the stock market remains highly unstable despite the passing of the $700 billion "rescue" plan, our situation is drawing comparisons to the Great Depression. If you're a small business owner, you are likely wondering if you'll become a casualty of these economic end times.
You do have a fighting chance, but you need to stop the handwringing and start taking aggressive action to safeguard your business.
"Nothing is more stressful for a small business owner than talk of economic catastrophe," says Ed Hess, Professor of Business Administration and Batten Executive-in-Residence at the Darden School of Business at the University of Virginia and coauthor along with Charlie Goetz of the book So, You Want to Start a Business? 8 Steps to Take Before Making the Leap.
"You start thinking about everything hanging in the balance, and if you aren't careful you let your worries overwhelm your common sense. Rather than taking steps to safeguard your business, you find yourself paralyzed by anxiety."
The authors stress that financial doom and gloom does not mean certain death for your small business. Once you accept that you're going to have to work very, very hardâ€”and that no one is coming to your rescue with a taxpayer-funded bailout packageâ€”you'll be ready to come out swinging.
"You have to remember who's in control," says Goetz, a Distinguished Lecturer in Entrepreneurship at Goizueta Business School, Emory University. "It's you. And only you. As a small business owner, you should certainly know what's going on in the economy, but remember that you are the captain of your ship. And if you take the proper action, you can steer your business around this economic mess."
Hess and Goetz provide a few small business safeguarding tips based on their decades of experience teaching and advising entrepreneurs:
1. Obey the Golden Rule of Small Business: Protect your credit! As the credit crunch worsens, it is critical that you make sure your business has the best credit possible to ensure you can get a loan if you need one. Make absolutely certain you are paying your bills on time. Don't let anything fall through the cracks. If you are having trouble making a payment, let the company or bank know why. If there is a dispute on a payment, get something in writing that says you aren't to blame. Being turned in to a collection agency will tank your credit score, something you absolutely can't risk.
2. You can't show your employees the money, but you can show 'em the love. You need your employees to be on your side now more than ever. Show them every day how much you appreciate them. You'll be surprised how much goodwill a handwritten thank you note can create. And while you can't give raises to show your appreciation, there are other waysâ€”for example, have lunch catered once a month or show up with doughnuts and coffee one morning.
"Your employees know that money is tight, so they shouldn't be expecting raises or bonuses," says Hess. "But you can pull them together and let them know how much their hard work means to you. You can say, 'Thanks for a great job!' when an employee goes the extra mile. Small gestures like these will let them know that you care about them and appreciate their hard work. Showing your thanks will help you build a better relationship with them, which makes it more likely that they will stick with you through thick and thin. Great employees are often the best defense in tough times."
3. Make outstanding service your "secret weapon." One area in which a small business should always excel is customer serviceâ€”good economy or bad. But when times are tough and customers have less money to spend, they really care that they're getting a lot of bang for their buck. They'll be looking to cut out those businesses that aren't meeting their needs. As a smaller company, you'll have an advantage over any larger competitors because you are better positioned to provide consistent, outstanding service. Small businesses just tend to be more flexible and can "turn on a dime" to meet client needs as they arise. Talk to your customers frequentlyâ€”see how you can help them in these tough times. The closer you stay to them the better!
4. Figure out where you can cut expenses. Do a line item check of your expenses and really think about what you could do without. Some cuts may be obvious. For example, if you have cable TV set up in your office, that might be the first thing to go. But to figure out the less obvious expenses, be sure to involve your employees. Because they are on the front lines every day, they may have a better idea of what can be cut. For example, maybe they've noticed that you have an incoming paper supply that could be reduced. If you're paying an expensive lease for office or warehouse space and your lease is up, you might want to consider moving to a smaller, cheaper space. Who knows? You could be able to get a good deal on an office lease or storage space. The real estate market is suffering right now, so more and more property owners are looking to make money on their properties any way they can. If your current lease isn't up and you are having trouble making ends meet, you might want to discuss a temporary renegotiation of your lease with your landlord that would allow you to pay less rent now and make up for it when your business improves.
5. Keep abreast of the news in your sector or industry. Depending on what kind of business you have, different economic events will affect you in different ways. Find a reputable website for your business sector where you can get free news about your industry. Staying informed will help you know which way to navigate your business.
6. Don't get so bogged down in the news that you worry. Know enough that you are able to steer your company down the right path, but don't get so obsessed with reading every breaking news item that you get distracted from actually running your business.
6. Re-examine your credit terms. You are running a business, not a charity. When times get tough you must let your late-paying or no-paying customers know that it is time for them to pay up. "Tell them you'll work with them to set up a payment plan that they are comfortable with," says Goetz. "But hold them to it. Knowing the state of the economy, most of your customers will understand the situation you are in and will do whatever they can to pay you on time, especially if you've served them well."
7. Manage your inventory. Keeping a close eye on your inventory will help you conserve cash and clean up your balance sheet. That way when credit loosens you will be among the strong firms that banks are willing to lend to. While the economy is slow, don't purchase more inventory than you can sell. Find suppliers that can help you replenish inventory as you sell it. It's also a great time to unload any inventory that hasn't been selling.
"Reduce prices on anything that has been on your shelves for a long time," says Hess. "Try to get what you can for it even if you don't make back everything you paid out. The product will be worth more to you if it puts some money in your bank account than it will sitting on a shelf in your backroom. Remember, in most cases inventory is not like wine; it does not get better with age."
8. Keep an eye on your competitors. There's no better time to know exactly what your competition is doing. If your competition seems to be thriving, figure out why. You might want to copy some of their techniques. If they're not doing well, you need to know that too, for other (obvious) reasons. "If your competitors are struggling, they may well go out of business," says Hess. "Be there to snatch up their customers. Taking advantage of failing competition provides you with the unique opportunity to grow your business during a slow economic period."
9. Get feedback from your customers. Keep communication lines open between you and your customers. Make sure you know how the bad economy is affecting them. Use surveys, comment cards, and one-on-one conversations to find out how you can better assist them during these tough times. "When you've gotten feedback from your customers, show immediate action in the areas they've complained about," says Goetz. "This will show them just how serious you are about great customer service. And if you take their suggestions and put them to action, they will feel like they have a hand in shaping your business so that it better meets their needs."
10. Create an online presence if you haven't already. A great way to stay in front of your customers and attract new ones is by maximizing your presence on the web. Make sure you have a great website that is easy to navigate and that makes it easy for visitors to purchase your products or contact you to discuss what your business can do for them.
"Online marketing can also be a big help," says Hess. "It's cheap and allows you to send information about your business to a large number of people easily. For example, sending a marketing e-mail is an easy way to get in front of new customers. Just make sure your message is on point and that you are sending your marketing messages to people who would legitimately benefit from your business."
"The economy is getting a lot of blame these days for sinking businesses," says Hess. "I'm not saying it's not making things harder for some companiesâ€”it certainly isâ€”but it isn't a deal breaker by any means. Sometimes it's just a convenient scapegoat. When you have a business with a good foundation and you take the necessary steps to protect your company, a small business can survive tough times."
About the Authors:
Ed Hess lives in Charlottesville, Virginia, and spent most of his business life advising entrepreneurs and financing their business ventures. He went to college at the University of Florida and to law school at the University of Virginia and graduate law school at New York University. Ed's professional career was spent with firms like Atlantic Richfield Company, Warburg Paribus Becker, Boettcher and Company, The Robert M. Bass Group, and Andersen Corporate Finance, and he has built three service businesses.
In 1999, Ed began teaching business students part-time at Goizueta Business School, Emory University, during which time he created and taught the entrepreneurship course. In 2002, Ed joined the faculty at Goizueta full-time as an Adjunct Professor where he became the Founder and Executive Director of both the Center for Entrepreneurship and Corporate Growth and the Values-Based Leadership Institute.
Charlie Goetz earned his college degree at Emory University and holds an MBA from the University of Texas. Charlie is a successful serial entrepreneur. He built several successful businesses, which in total employed over 1,500 people. He sold most of his businesses and made substantial amounts of money their sales. Charlie then began teaching entrepreneurship at Emory University in the Goizueta Business School where he was again successful. His courses are always oversubscribed, and he has earned multiple teaching awards.
Today, Charlie lives in Atlanta, Georgia, and is an investor in several new businesses and consults with people starting businesses. His specialties are marketing, customer acquisition, and product development.
About the Book:
So, You Want to Start a Business? 8 Steps to Take Before Making the Leap is available in bookstores nationwide and from all major online booksellers.