Prepare to ride waves of changing economyQuestion:
I keep hearing this economy can't last forever. How should I prepare for a downturn? Answer:
This economy has lasted much longer than many of us could have predicted. At this time, the stock market is close to 11,000 points. Some folks say the bottom will soon fall out. The fact is, we cancontrol what we can control and the economy is something you and I have little control over. All good businesspeople position their operations to survive any economic conditions. This, it's prudent to run your business as you would your household. While times are good, reserve six to 12 months of living expenses [or business expenses] in case the market or business dips. Instead of preparing for a downturn or upturn, prepare to manuver as ecnomic conditions change. If the stock market dropped 100 points every day for the next two weeks, how many of your customers would call and say "Hold off on starting that order I just gave you last week?" iHow many of your customers would need to cash out investments to pay you? Or is most of your business funded by disposable income? Don't panic. If you do, you'll moss out on one of the best economic booms ever. You don't expect to get the same rate of return from your CD when the rate is 18 percent than when the rate is 6 percent, do you? So don't expect the same rate of return from your business at all times. You should be producing a higher rate of return right now, but don't spend it like its going to last forever. Instead, diversify your business to weather any economic storm. Or, as I mentioned earlier, put away the surplue money to help you for whatever happens. In addition, modify your business plan by adding a section for contgency planning. I always did this during good times and bad times. It prevent that knee-jerk reaction to any unexpected turn in the business, which frequently is the wrong thing. Plan for an increase of 20 percent to 30 percent in your business. How do you handle it? What additional resources do you need? People, financing, space, suppliers? Develop plans to fill the shortfall. Can you offload some of the production to other manufacturers? Now do the same thing for a reduction in business of up to 30 percent, or if you're really a pessimist, use a 50 percent reduction. What expenses can be reduced, deferred or eliminated? What resources would be required to operate the business at 50 percent sales volume? I know it's not an easy task and may be painful, but if you're really concerned take the time and do the planning. Get your various supervisors or key employees together and work on the problem, especially the accounting and financial departments. Use in-house resources to develop a workable plan. It sure beats filing for bankruptcy or selling out to your competitor because of the inability to handle the change in business volume, either too much or too little. And remember, too much business also can cause problems because of lack of resources, especially increased cash flow.
Bill Bryan is a counselor with the Service Corps of Retired Executives. SCORE offers counseling, workshops and seminars on small business operations. You can reach Bryan through SCORE, 515 N Court St. 815-962-0122, for information and appointments.
SCORE is a registered trademark of the Service Corp of Retired Executives
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