Every business must face the fact that they will eventually have to endure the impact of downturns in the economy. Economic conditions cycle for various reasons and, even though there has recently been an extended period of a strong economic environment, the world is now facing a rough patch that will impact most businesses.
There are some things that business owners and managers do during difficult times that sometimes just don't make sense. Here are five of those that you should be careful to avoid:
1. Don't panic! Panic is the root of many business problems because emotions overtake logic. When that happens, decisions become short-sighted and are based on short-term results. Stay calm and evaluate the impact of the changing economy on your business over the immediate-term as well as the long-term using sound logic and realistic scenarios that might play out. Certainly you should consider worst case scenarios, but be careful not to immediately assume that they will play out. How you handle things will in a large way determine to what extent the economy impacts your bottom line.
2. Don't jump to terminate good employees. While it may be necessary to lay off some employees when things slow down significantly, be very careful which ones you let go and which ones you keep. Cutting loose great employees can actually exacerbate the impact of a bad economy because your ability to manage through it is compromised. Good people can help weather a rough economic cycle. And you also should consider what happens when the economy improves. Ask yourself if you will be able to replace strong employees with equally strong or stronger employees when you need to rehire. And running too lean can lead to other problems in terms of productivity and customer service leading to long-term problems from which you may not be able to easily recover. Carefully consider what impact any substantial layoffs could have on your business.
3. Don't assume that marketing expenditures should be the first things cut. Too many companies jump immediately to marketing and sales items when cutting expenses. If there are marketing expenditures that are yielding marginal returns on your investment, certainly look hard at those. But there are times when marketing expenditures must be increased during difficult times to help power through the cycle. A mistake that many businesses make is that they cut marketing and sales efforts and fail to cut less important activities and expenditures. Look closely at how any cut in your marketing and sales efforts will impact your business.
4. Don't be afraid to renegotiate! Whether it is your bank, your landlord, your suppliers, and anyone else you may be paying on a regular basis. Can you restructure loans? Will your bank lower your rate? Ask your landlord to reduce your rent to keep you as a tenant if you are nearing the end of your lease. Talk to your suppliers and let them know they will need to bend on pricing or discounts. In general, talk to anyone you make payments to and let them know you need some relief.
5. Don't sit back and do nothing. Look at your expenses and see what can be trimmed without negatively impacting the business. If you don't have a sound strategic plan in place, get one in place immediately and begin executing it. How about annual business and marketing plans? If you don't have those developed, work on preparing them now. If you have unproductive people, get them productive or replace them if they can't get productive. If you can raise prices even slightly without impacting demand for your product, do so to enhance margins. If you have to decrease prices due to reduced demand, do so very carefully and don't lower them more than necessary. Shop around for better pricing on things you buy. Look at your processes. Can they be improved and made more efficient? Do you have managers or supervisors who are ineffective? Get them some help or replace them. Is your customer service lacking? Work hard to improve it.
Avoiding these mistakes can enhance your chances of withstanding a slow or troubled economy. A downward trend in the economy can have an impact on any business. Don't exacerbate the impact of the economy by making bad decisions out of fear or panic. At the same time, don't ignore the economy and what your business can do to withstand a downturn. The good news is that most businesses can survive a tough economy with appropriate action and decision making.
Disclaimer: The information provided above is for informational and educational purposes only. It does not construe advice. Your use of the information is at your discretion and you assume the sole responsibility of relying on the information at your own risk.
