Surviving the Downturn: A guide for business owners

If you are a professional, read this guide on surviving the downturn for professionals.

Many owners of small businesses, especially those who started their business in the last 10 years have never seen a downturn. For them, the current downturn is the first time that they have seen anything that resembles a constraint in the economy and the market. Many of the business-owners are wondering how they will survive it and wonder how to continue to recover outstanding payments from customers, continue to sell, keep their costs low, protect their margins and keep customers from defecting to competition. In this article, we will check out strategies and resources for small to medium business owners to operate in a slow economy.

There is a need for a change in mind-set from a production-constrained system of boom times when sales were hampered by the capacity to produce or serve, to a sales-constrained system when you may have excess capacity to produce or serve but not enough sales. Earlier, high volumes driven by high sales and advertising costs at low margin was considered alright as profits, even though low per unit, were assured. Today, that mindset is a recipe for disaster as high costs will overtake slow sales.

In terms of sales, you should now look at sales effectiveness, not generating high sales and production. Start measuring how many leads are being generated from your advertising programmes, how many leads are converting to sales, how effectively do we take a customers from a lead to an inquiry to a sale and even to repeat sales. This is not the time to generate traffic to your website or to get a lot of inquiries, this is a time to engage each new inquiry and convert as many as possible to sales and then keep them as regular customers. This will help you get the most out of your marketing and advertising dollars.

Return on investment (ROI) should be calculated on each programme or proposal and those that don’t justify their cost and have long-term benefits should be reviewed. Having survived, a business can build long-term value later but wasted dollars today that have no short-term benefits may prove expensive.

Focus on recession-proof customers and products. For example, luxury items, cars and boats, expensive travel may be the first few sectors to suffer but essential items may not feel a lot of heat.

If you work with dealers and distributors then support them during these times when they may be in trouble themselves and you can hope to enjoy their support to promote your objectives.

Sell non-core assets and convert into cash and find innovative ways to make your debtors pay on time.

Avoid unnecessary discounting, as it will hurt you by associating your product or service with low price and low quality. Instead of cutting sale price, review all your overhead costs and try to reduce them as much as possible. Look for alternatives in travel, office supplies, advertising, software subscriptions, recruitment services and opt for self-service options wherever you can.

Let’s have a detailed look at some of these opportunities to cut costs. If you are a regular reader of this column, you would have read my earlier article on software and services available on pay-per-use basis. For example, Basecamp HQ is a service for project management available for a modest monthly fee. Google Docs is a free office productivity software.

If you are a consultant, then having a robust profile and a strong network on social networking sites such as Linkedin or Zaabiz can help you gain projects and keep existing clients as your reputation will precede your proposal.

Cutting costs is only one part of the equation. The other part is making your marketing and sales investment to work harder. Having a good website and implementing online marketing can do the trick. Use search engine marketing, primarily Google Adwords to target customers of your product or service when they are searching for it. You pay only when someone clicks on your listing containing a link to your website.

But acquiring new customers via search is only half the story. The other half is engaging them with your business, keeping them as part of your contact database and communicating frequently with them. E-mail marketing software such as iContact, ConstantContact, aWeber, VerticalResponse and ReachMail are some of the ESPs or e-mail service providers that can help you maintain multiple mailing lists, design, create and send multiple e-mails, all on a monthly fee basis, from $10 for a database of 500 people to $50 (for 5000 e-mail addresses). You may use outsourced public relations such as PRWeb or PublicityShip.

Government agencies such as NSW DSRD (relevant to NSW, Australia based business owners) conduct useful free seminars and workshops and you may use these forums to discuss with speakers, experts and other participants on the measures that they have taken to manage their business.

Finally, good scenario planning by working out your projected income and expense statements at different levels or scenarios – heavy, moderate and light downturn – using different margins, sales and costs figures can help you plan your business in advance. Coping with downturn is all about planning well, being conservative and well prepared.

Originally published in Indian Link, a leading community newspaper published in Sydney.