Your business could be your best investment. Does it deserve some extra attention?
Tough times can have a Darwin effect on businesses, with the fittest businesses being those that will not just survive the tough times, but position themselves to prosper as the economy improves. With that in mind, the one upside of a tough economy is that it presents an opportunity to step back and work on your business, not in it. Nobody is happy about being slow, but a slow period can be a great time to step back and evaluate what has and has not been working in your business. Based on that evaluation you can develop plans to move forward and position your business to be more productive and profitable when the economy improves.
The place to start is by revisiting your vision and mission for the business. Why are you in this business anyway? What benefits does the business provide you the business owner? Why do your customers do business with you instead of your competitors? Often times, business owners get so caught up in the day to day operations of the business, that they can lose sight of the “big picture.” This is the classic case of not seeing the forest because you’re focused on the trees. Now would be a good time to step back and determine if your business is still on the path of fulfilling your vision or if it has gotten off track.
The next step is to thoroughly review your overhead. Is there an opportunity to restructure your debt? Current interest rates are still historically low and maybe now is a good time to talk to your banker about refinancing. Reviewing other expense items, are there any that seem out of line? There is no time like the present to question every expense. That said, one of the toughest things to evaluate is your staffing. Hiring, training, and retaining good employees is a huge investment and not one that should be taken lightly. If you haven’t done it already, having clearly defined processes and responsibilities will help you improve the efficiency of your staff, and will help you to determine if you have the right staff levels or if you may have outsourcing opportunities.
Cash is always king, but that is never truer than when times are tight. To that end, how are your receivables? Do your customers think you’re the bank? Does your company have a collections policy and a process in place to deal with slow paying accounts? What about discounts? Are you taking advantage of discounts offered by your suppliers? Do you offer discounts to your customers? How do you determine which customers are offered a discount? How much of a discount do you offer? Discounts are like free money. Are you taking the discounts or are you giving them away?
As any business owner knows, you can improve profitability by lowering expenses, but if you want to grow the business, you need to increase revenues Do you have a strategy? There are basically three ways you can do this. You can increase the number of customers you have (sell to more customers), increase sales to the customers you have (raise your prices), or you can increase the amount your customers buy (sell more to your customers). All of these strategies have their pros and cons. Which makes the most sense for your business? Once you’ve chosen a strategy, what steps do you need to take to implement it?
Now would also be an opportunity to review your disaster recovery plan. What would happen to your business if a key employee came down with a serious illness? What would happen if you had a fire, or an earthquake hit? Does your business have a plan to deal with potentially catastrophic events? While these are the types of things nobody likes to think about, the ones that do have a plan in place are the ones that will not only survive the challenge, but will thrive when others who are less prepared don’t make it.
Again, nobody wishes for a recession, but savvy business owners will recognize that slow times can be an opportunity to fine tune their operations and put them in a position to prosper when the economy recovers. At Meritage Wealth Advisory, we help our business owner clients step back and see the big picture, and then help them develop plans to get them where they want to go. If you’d like to schedule a no-obligation meeting to discuss how we can help you, give us a call.