Practical Steps to Surviving a Recession
Being an entrepreneur is not for the faint of heart. Add a recession to the equation and you get business owners that are pushed to the breaking point. Customers are more cautious with their spending, banks are more conservative with their lending and the expenses of running a successful business are persisting. No one can say exactly when the economy will turn around, so entrepreneurs will continue to do what they do best – navigate through uncertainty.
Business owners must make strategic decisions that get them through the difficult times. It may involve a certain amount of cost-cutting, but it is important to also focus on the long term strategy of the business in order to emerge in a healthy state.
“It’s times like these when tremendous competitive success can be achieved. It’s times like these where companies can shift positions in the marketplace. It’s times like these when leaders can become followers, and followers can become leaders, because we are in a period where everything is now going to open and unfreeze,” says Michael Porter, a Harvard professor and expert on business strategy in a recent interview with Insead’s Knowledge newsletter.
Porter also states that during an economic downturn, the successful companies are the ones that stay focused on their goals. He cautions businesses against overreacting and conducting a complete overhaul of their strategy. Porter gives the example of a company that prides itself on excellent customer service, deciding to cut back on service because of customers wanting to pay less. In short, do not make decisions that will ultimately undermine the core of your business.
The current economic landscape does, however, call for shrewd financial management. Here are some practical measures that companies take to conserve capital:
Everything is open to re-negotiation
One way to save money is by reducing overhead costs. This may be an opportune time to renegotiate your lease. Your success with getting satisfactory terms will depend on a number of factors, so be sure to first do your market research. Find data on current rates in your market. Investigate your landlord’s current occupancy rate, but most importantly, be prepared to present a compelling case as to why your landlord should reconsider the terms of your lease. If you can show that you have already taken measures to cut costs in other areas or that your sales are significantly down, you landlord may be willing to work with you. After all, some rent is better than none at all.
In negotiating the terms of your lease, consider asking for additional flexibility in what you can do with the space. For example, maybe the landlord will allow you to sublease unused space. The income from a sublet would then subsidize some of your monthly payments.
If you are at the tail end of your lease, consider yourself fortunate. Many markets are experiencing low occupancy rates, and landlords are more flexible on their terms. This may be an opportunity to get premium space at a reasonable rate.
Bartering is back
Do you need to maintain your marketing strategy but the operating budget cannot accommodate the cost? Or maybe you need a new printer that was not budgeted for. Consider exchanging goods and services with other business owners.
Bartering was man’s earliest currency and there is still room for it in modern business. It has become easier as organizations such as the National Organization for Trade Exchanges (www.nate.org) facilitate the process for business owners to join barter networks. The website provides several benefits of bartering, including conserving cash reserves, moving excess inventory and attracting a new source of clients.
Green your office
Taking simple steps to re-use, reduce and recycle will positively impact your balance sheet. Given the amount that companies invest in technology, most companies could actually move towards a paperless workplace. Print less, email more and back-up electronic files. In turn, the company will save on paper and those expensive ink cartridges.
Other measures include ditching bottled water and investing in a reverse osmosis system. The water quality is comparable, and it pays for itself in a few months. And of course, switch to energy efficient compact fluorescent bulbs, which use less energy and save dollars.
The recession makes it difficult to run a thriving business, but it does provide an opportunity for businesses with good survival skills and solid strategies to emerge as the clear leaders.
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