Some of my blog writing time has been directed to fulfilling a request to provide articles for the American Express Open Forum®. The first one is titled “3 Components of Financial Clarity” and it went live on their website yesterday.
Imagine swimming from one end of the pool to another in 30 seconds. Is that good or bad? How do we determine how we are doing, what is going well, and what we should try and improve? It primarily has to do with comparing our performance to ourselves and others.
Did you have a business plan in 2009 or if you had, have you looked at your 2009 business plan throughout the year to see if your goals and strategies were on track? If you are like most businesses, chances are that 2009 have been a very challenging year implementing those goals and strategies. When things are not going quite the way you wanted to be, you must change your goals or strategies or both, and write them down.
One reason why you need your 2010 plan now is to adjust your goals, strategies, and actions based upon current and anticipated future economy to make sure that you are doing the right activities for the success of your company. Perhaps the activities you need are to find ways to cut down on your expenses or find a new way to get the word out about your business. Unless you write them down now, even though you might know them in your head, achieving them would be more difficult than when you have it written. Studies have shown that goals and plans that are written down have ten times the likelihood to be achieved than when it’s not.
Second reason why you need your 2010 plan now is when you sit down to write a plan, new ideas and goals might “pop” into your head that you might not have thought before. These new ideas might be just what you need to get you “head of the game” in 2010 against your competitions. Remember, a business plan is a “living” plan, which means if the plan does not fit the business any more, you must rewrite to fit the business. A well-written business plan will not only get you funding when you needed it but it will help you achieve your goals and objectives faster. Well-written business plans start with mission and vision, then goals and objectives, then strategies, and actions. We, here at CFO Wise, can guide you and help you write that business plan that fit your needs to make your business wildly successful
I have heard this statement more often than I care to admit: “I cannot predict the future so a budget would be worthless for my business.”
An article entitled How to Create a Budget in BusinessWeek prompted me to recollect some of my experiences with helping people who have the above attitude towards budgeting gain a new appreciation for the process and, more importantly, the results the process can generate.
I have and will continue to make this guarantee to any business in any industry anywhere in the world: if you follow the “best practices” steps to creating a financial plan and operating budget for the next twelve months and you track your monthly progress against that plan, you will know more about your business than 80% of your competitors know about theirs.
Why can I make that promise? Because the things learned in that twelve months are so revealing in terms of the most effective business model and other competitive advantages that the company cannot help but begin to develop and implement the right strategies for making the business more successful.
Why do most businesses fail to implement this process? I have found that the two main reasons are lack of discipline and lack of resources. This process requires a great deal of disciplined time, including the discipline to review your results against your budget EVERY month. The budget is worthless if we do not do this. The focus of this monthly analysis should be on the variances in the budget. We need to know WHY we varied from our budget. What can we learn from that? What can we change to improve our performance in that area?
Some companies lack the resources to be able to analyze their historical data and then easily track their progress. Perhaps they do not have an accounting system in place, or perhaps they do not have anyone that knows how to properly operate their system. The accuracy of the numbers is certainly a critical element to making the budgeting process a successful experience. So, having the right staff and a functioning accounting system are critical to this process. Even QuickBooks allows its users to enter in budget information and then run reports to track the monthly progress and variances.
If anyone reading this post doubts me, I challenge you to try it for 12 months. In my experience as a part-time CFO for many emerging companies, the value derived from our busgeting process and reports has improved the bottom-line dramatically. I think you’ll experience similar results.
I attended a presentation at UVEF today by Skullcandy Founder & CEO Rick Alden. By the way, Rick is being considered for the Entrepreneur of the Year award for 2009 by Entrepreneur Magazine. Vote for Rick here!
Rick brought up a thought-provoking question that no one had an answer for, including himself. We have all heard of the start-up companies that started in the Founder’s basement and grew into wildly successful and profitable ventures. But how many success stories have we heard of companies that start with millions of dollars in the bank and an “A” management team in place?
We can logically build out a sound reason why both situations foster success, but the underlying premise is that perhaps early-stage success has less to do with lots of capital and an impeccable management team. Perhaps the struggle to scrape by and bootstrap at the beginning builds a discipline that makes the start-up more likely to succeed. Maybe well-funded start-ups don’t appreciate the struggle most encounter to raise capital and they spend it unwisely. Or, we may find that having all the capital and the complete management team improves a ventures chances for success.
I would love to hear feedback on this. Any thoughts?
HERE IS SOME OF THE FEEDBACK I HAVE RECEIVED IN ADDITION TO ANY COMMENTS TO THIS BLOG POST:
@greggwitt: absolutely too much capital can hurt. saw it happen first hand.
Paul Herron: I like the analogy of an infant becoming a toddler, child, adolescent, and adult. You start with a newborn invention or idea and a founder’s vision of how “success” will ultimately be achieved. Execution of a business plan in a nurturing environment may lead to tangible, measurable accomplishments, and each step toward maturity is rewarded with greater resources and more variables to manage. If milestones are met and feedback is positive, healthy growth takes place. Slow and steady progress is always preferred, but every industry has examples of erratic, unexpected successes and failures. Drug development, for example, is a very high-risk proposition, requiring close parental supervision all along the way (and perhaps just a bit of luck). Accordingly, many “infants” just don’t survive.
This is a great discussion topic, and I’ll look forward to reading different views.
John Kogan: The garage/basement, scratching month-to-month teaches you good habits and forces you to make tough decisions. This all leads to maximizing capital efficiency and your own inventiveness. When there are plenty of funds around you tend to substitute money for work and thought. It’s not that you aren’t putting in the hours, it’s that you don’t have to consider every decision quite as hard. Also, it’s much easier to say “we’ll hire someone” or “let’s pay someone outside to do this” rather than hunkering down and doing it yourself – which is how you really learn when you are a young startup.
Could too much success hurt? Sure. But I think it would hurt for the same reasons as too much money, and primarily b/c it would bring a flush of funding and the sloppiness that follows. Of course that’s just my two cents (and as a scrappy startup, we can’t afford a penny more).
Larry Davis: I have worked with more than two dozen start-ups since 1999, and I find that the probability of success is driven more by the perceived tangible beneifts of the product in the eyes of potential customers as opposed to the amount of capital raised or the quality of the management team. If you are developing a product that offers measurable ROI or enhanced performance, you will generate revenue more easily than many others can offer. Then, it’s a matter of controlling costs so that your venture is profitable.
To answer Ken’s question directly, I would suggest paying attention to Ning. This is yet another social media company, but it is headed by internet legend Marc Andreesen, who has no trouble attractive investors and certainly has plenty of money of his own. Thus, Ning has plenty of capital and as “A” CEO as a company could have. Let’s see how they do!
Mark Macleod: I think it’s way better to start off without a lot of capital for many reasons:
- keeps you focused
- keeps intensity up
- keeps your ownership high
In the bubble days I was in a startup where we raised too much money. We got defocused and comfortable. Startups do best when they are lean and mean. So, I come down very strongly in favour of the lean approach.
Twitter is one example of a company with may more cash than it needs now. We’ll see whether they execute and deliver on their billion $ promise.
When I was young and received a new baseball hat, I would work the bill of that hat until it formed a symmetrical arch - in the general shape of a rainbow (see photo above). This was accepted as the best and most stylish thing to do at the time. Today no young people engage in this ritual. They take their new hat, flat bill and all, and put it right on their head – and they never work the bill into an arc (see photo above). It is straight-as-an-arrow and, in my opinion, not very attractive.
This is a small example of a world that is constantly changing. Business is no exception to this rule. In fact, unlike popular fashions and trends that may come and then go as quickly as they came, business change is about finding more value, efficiency, cash flow, and profit.
Some of the traditional business models, or old ways of doing business, are under serious overhauls in our new economy with the help of technological advances, social media growth, and a general philosophy that leaner is not only meaner but powerfully more effective.
Here is an example: the professional services industry, as a whole, has been shifting towards a flat fee business model in opposition to its entrenched hourly-rate model. Those leading this charge are seeing phenomenal success. Those unwilling to change will continue to see their revenues, and more importantly, their profits fall.
I recently met a manufacturing firm that has had the same ownership and leadership since 1976. This is impressive, with the exception that the leadership has failed to adapt their business to more effective business models through the years. Their inefficiency, lack of technology, and resistance to change in general has them teetering on bankruptcy. In other words, they are still focused on putting the arch in their baseball hat when the rest of the market, especially their competitors, has a new and better way.
I’m not going to change the way I wear a baseball hat – I guess that makes me old and I am willing to deal with the very minor repercussions of my decision. Some changes in business are fads and will not have any impact on the most effective model for an industry. But some of these changes are monumental and must be adopted if a business hopes to survive. The executive team, which inlcudes the CEO, CMO, COO, and CFO jobs, is to continue to drive the business model towards acceptance of those changes that will bring great value and true competitive advantages. This should be at the premise of any strategy a company develops for its future.
A financial model and an operating budget are two different things, but the two should correlate with and complement each other. I’m going to briefly discuss the differences, what each is used for, and how to use them both more effectively to run and improve your business.
THE DIFFERENCES
Financial modeling/forecasting usually takes a big-picture approach and avoids too many details. The model is used to assess opportunities and the cause and effect of major business decisions. The model is often expressed in terms of yearly performance.
An operating budget, in contrast, is mired in the details. It needs to tie directly to the accounting system’s general ledger, or chart of accounts for QuickBooks users, and is usually a month-by-month forecast of the activities of each account for the next 12 to 24 months. Use of the operating budget includes analysis of the budget vs. actual performance each month.
HOW & WHY SHOULD THEY CORRELATE?
A business needs to have both a financial model and an operating budget. An operating budget without a long-term model/forecast leaves a company pretty directionless and lacking the ability to understand the impact of business decisions on financial performance. A financial model without an operating budget is a “pie-in-the-sky” dream that is not founded in reality. There is no way to track progress towards accomplishing the goals and objectives, if they are even outlined, and it is almost impossible to hold anyone accountable. Every business should have both.
The place where many companies go wrong is that they do not actively use both of them and ensure they “feed” into one another. For example, let’s assume we have modeled $5,000,000 in sales for 2009 but our operating budget calls for $3,500,000. This discrepancy is large and invalidates one, the other, or both!
The operating budget needs to validate and complement the assumptions made in the financial model, and vice-versa. In fact, the monthly review of the budget vs. actual performance can often generate valuable information about our assumptions and can justify changes and updates regularly to the financial model.
For example, let’s assume we project a 50% gross profit in our 5-year financial model. Due to changes in the economy, increasing material prices, and a slight change in mix of products, our gross profit is coming in every month at 45%. We find and track this in our operating budget analysis each month. Since the trend seems to be consistent, we may make a decision to update the gross profit assumption in our financial model.
CONCLUSION
With an understanding of the differences between a financial model and operating budget, we can see the need to bridge the gap between the long-term planning and short-term budgeting so that they complement each other. While this requires some effort and often the expertise of a full or part-time CFO, the result is always a competitive advantage in terms of a more effective execution of our business model. That means more cash flow and better profitability that your competitors, which results in a sustainable competitive advantage.
Every sensible financial model projects the results of all three major financial statements – the profit & loss, balance sheet, and statement of cash flow. The balance sheet, not the profit and loss, is what drives the cash flow of the business. If the balance sheet is not correctly modelled, then the cash flow forecast is most likely inaccurate and worthless. Yet the balance sheet is the part of the model that is usually the most neglected and least understood.
In order to help get the balance sheet forecasting correct, we have identified three common mistakes that entrepreneurs, CEOs, business owners, and even business financial consultants make: NO balance sheet projections, failure to correlate operating activities on the P&L to changes in the operating assets and liabilities on the balance sheet, and disregard for the debt and equity transactions of the firm.
BALANCE SHEET IS MIA
The most common mistake made is the exclusion of a balance sheet forecast from the financial model. The balance sheet represents the most complex transactions of the company and may be left out of the model because the company lacks the expertise of a CFO or a CFO firm to assemble this critical part of the model.
CORRELATION OF OPERATING ACTIVITIES AND OPERATING ASSETS AND LIABILITIES
The major operating assets include accounts receivable, inventory, pre-paid items, and more. The major operating liabilities include accounts payable, taxes payable, and other accrued expenses. When sales go up, accounts receivables go up, and cas goes down. But does the model capture that? If sales go up, can we expect our inventory level to stay the same? Most likely it will need to increase. The increments of these changes are dependent upon the relationship between our days sales outstanding and our inventory turnover.
As sales increase, our accounts payable usually increase as well. The timing of our payments against our accounts payable is a major outflow in the cash flow puzzle that is called working capital. We need to define the relationship that payables have with our operating activities and implement this relationship in our balance sheet model.
There are several other operating assets and liabilities that dramatically impact cash flow. We will avoid all of the details of each, but it is fair to say that without properly forecasting them, our cash flow forecast will never be accurate.
DEBT & EQUITY TRANSACTIONS
Are we bringing in any more equity investments during the period we are modelling? What is our dividend policy for shareholders? Is some or all of the active shareholders compensation coming through equity? All of these items can have a significant impact on cash flow, although none of them show up on the P&L.
In addition to equity transactions, the structure of all of the company’s debts and obligations need to be correctly reflected on the balance sheet. An interest only line of credit will keep the same balance until more is withdrawn or some is paid back based on the cash flow of the firm. Term loans need to show the correct amount of principal being reduced every month.
Obviously these items can seriously change our cash flow, and they need to be included in the financial model so we can correctly forecast our cash flow.
CONCLUSION
This list of common mistakes is certainly not comprehensive (you’ll notice we did not address capital expenditures at all), but should create a positive foundation to build the balance sheet model. Our CFO services firm has built hundreds of complete financial models that have helped our clients get a handle on their companies, make the best strategic decisions possible, raise necessary capital, and perhaps most importantly, track their progress so they can correct problem areas and make more valid assumptions in the future.
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A good financial model should feed into three main pages, which happen to match the three main financial statements of a business – profit & loss, balance sheet, and statement of cash flow. These three components of the model should never be circumvented nor should we ever try to short-cut the need for all three.
With these three pro forma statements as the final deliverable, there are at least three additional worksheets that need to be part of the model. They include assumptions, marketing/sales/COGS, and payroll.
ASSUMPTIONS
Every working financial model should have one page that contains a majority of the assumptions for the model. Assuming we are using Excel or another spreadsheet template to create the model, these assumptions should be linked throughout the model. This gives us the ability to make a change to any one of our assumptions and then see how that changes our profitability and cash flow outcomes.
MARKETING/SALES/COGS
We need detail! It is not sufficient to say we are going to grow sales by 50%. What are the marketing activities that will drive that growth? How many leads will we need to generate a sale? What is the cost of these leads and other marketing activities? Which product or service lines will grow more than others? How does our gross margin differ on these lines as compared to slower-growth or even obsolete lines? Is there a difference in both the collections and the payment for costs of goods sold between these lines? How will this impact cash flow? These are the questions we look to this worksheet to answer.
PAYROLL
How many people is it really going to take to accomplish what out financial model projects? What are the salary and wage costs to hire all of these people? Are our hiring practices in line with the sales per employee financial ratio according to our industry benchmark? Have we correctly factored in all payroll burden and benefit costs, including FICA, FUTA, SUTA, worker’s comp, other state payroll taxes, health insurance, 401(k) match, etc.? Have we correctly forecast all of the costs associated with adding these new employees, including recruiting, HR, and new office and computer equipment? These need to be factored into our plan so that we can demonstrate a realistic cost for growing our firm.
While there are many other supplemental worksheets that may be used to help build a formidable working financial model, these three are a requirement. We either need to create and maintain this model ourselves, or we need to look to finance and strategic planning professionals like those who fill the CFO job for either one company or for many companies in the capacity of part-time CFO.
How many forecasts do you keep concurrently in your company? If the answer is zero, then we have some serious work to do. But if your answer is one, you may be falling well short of what is necessary in these difficult economic times.
Here is a real story of a conversation I had with a banker in the last 6 months about a client of our CFO firm. My client needed to finance some heavy growth and we stretching to try and use only bank financing to accomplish this growth. The banker was concerned about the effects that our plans for growth could have on the business.
He said: “Ken, I have your projections in front of me, and I understand they are conservative, but I’m not going to feel comfortable about this deal until you can show me convincingly that a 25% downturn in this company’s top-line will not kill this company.” I agreed to re-work our forecasts based on his request, and I went ahead and ran an additional model with 25% additional growth on top of the already projected growth trends. In about two hours we went from one forecast to three, and the exercise was overwhelmingly valuable.
In the July/August issue of CFO Magazine, Tenet Healthcare CFO Briggs Porter said: “Developing a plan on three different levels (baseline, high, and low) is a good idea in any environment, but it is a necessity in this one.” I could not agree more with this statement. Forecasting is tough enough, but these uncertain times make it even more difficult. And the stakes are high – if you fail to plan for each scenario, you can quickly put the company in a world of hurt.
Financial modeling and forecasting is an exercise that ultimately only proves beneficial if we use the models and forecast to validate or invalidate our assumptions, make necessary and timely changes in our businesses, and continue to try and stay ahead of the where we are going. In large organizations, the CFO usually runs and updates the model. Those without a full-time CFO can access CFO services from a CFO advisor or CFO consultant that specializes in helping many companies create and then use their model effectively.
I have and will continue to make this promise to anyone willing to take this challenge: If you will put a forecast/budget in place and track your actual performance next to your budgeted performance every month for 12 consecutive months, you will know more about your business and industry than at least 80% of your competitors and the competitive advantage you gain from the insights and knowledge you will gain during this process will add an overwhelming amount of value to your business.
You have gone through the painstaking effort of creating a formidable business plan for your enterprise. Now, what do you do with it? The answer – use it at least monthly to run your business!
After investing thought and time into the business plan, the biggest question mark that still remains centers around the assumptions we have made concerning sales, margins, and cash flow. It is imperative to validate or invalidate our assumptions with our actual performance.
If we assumed our sales would grow by 5% each month, are we actually hitting that number? Are we higher or lower than it? Why? Is our sales cycle taking longer or shorter to complete? Are we hitting our conversion assumptions? The result of actually tracking our sales performance relative to our assumptions will generate two results: first, we will be able to hold our organizations accountable, and, second, we will more clearly understand our sales process and empower ourselves to make better assumptions in the future.
There are many valuable results that we will realize if we use our business plan at least once per month to help us run and grow our business.
You had to do it. You had more staff than work, and your cash flow was not going to be able to support everyone you had hired for much longer. You gear yourself up and let some of your closest friends and colleagues go. Then you realize your most difficult job still lies ahead – retaining your remaining staff and their morale!
After reading Leadership After Layoffs I thought about the many companies that have laid off or will need to lay off employees. There has been and will be a lot of material written on how to communicate with the remaining employees after the layoff. But far too little is written on the need to formulate a financial plan to survive the layoff and return to prosperity.
Does the CEO really see how the layoffs will solve the company’s cash flow and profitability issues? Can he/she confidently explain to the remaining staff why these cuts were just deep enough but not so deep that the company’s hallmark way of taking care of its customers will not be in jeopardy?
With a sound and reasonable financial model that accounts for the “before” and “after” effects of the layoff, a business owner, entrepreneur, or CEO will be able to communicate with honesty, transparency, and confidence. A leader should have the financial model/plan in hand when he/she meets with the remaining employees. The leader should be able to say something like this: “If we can realize at least $50,000 per month in sales for the next 12 months, we will not have to make any more changes in staffing.”
Such communicating will begin to rebuild the trust of the remaining workforce who just saw their friends and colleagues escorted from the building. If the leader fails to communicate specifics and refers to the future performance of the company in vague terms, the employees will continue to lose their trust in the company. Productivity and morale will drop and the company’s chances for survival become much less realistic.
It is my experience that when a company has a sound financial plan for rebuilding the company after a layoff, the productivity and morale of the remaining staff actually increase. This improves the firm’s chances for success and helps its comeback as a leaner, meaner, and more nimble firm that adds even more value to its current and future customers.
If you are in need of a financial plan, call one of our part-time CFO’s today.
The answer is simple – no. At least the answer is no in a study of 5,000 businesses started in 2004. Scott Shane writes an interesting article on this study. The most enlightening part of the study is the relatively small amount of the total new venture financing that comes from the illustrious group referred to as friends and family. Only five percent of the new companies received equity from this group. Most in the business plan, new venture, and entrepreneurship fields stress the importance of approaching friends and family first for start-up and growth capital. Whatever the cause is, the result is clear – funding is coming from other sources. So, should a new venture even try to raise capital from friends and family? While the answer will always depend on each set of unique circumstances, friends and family are usually one of the cheapest and least sophisticated sources of equity for a new business. Just don’t be surprised if you have to look elsewhere for financial help for small businesses.
This Article is from Daniel Crosby with SPERDUTO & ASSOCIATES, INC. The most recent downturn in the U.S. Economy has prompted widespread fear and comparisons to the Great Depression. Notwithstanding the negative reality of the current economic milieu, there are things that can be done to survive, and perhaps even thrive in a recession. The suggestions below represent a synthesis of ideas on “recession-proofing” your business, learning from the hard lessons of the past, and adapting to a changing economic reality. Some of the ideas are intuitive, some less so, but all can be held up against your current business practices as you inevitably look for ways to weather the current economic storm.
-Be flexible
-Stay lean and nimble enough to adapt to a changing marketplace.
-Cross-sell existing clients, revisit old clients, send them a hello letter, a thank-you for their business in years past, revisit the possibility of working together.
-Utilize social networking sites.
-Sites such as LinkedIn are free and allow broad marketing potential at no cost. Contribute to the community and broaden your exposure by answering questions and contributing to discussions in your area of expertise.
-Tapping into client “pain” is an important way of marketing your services. Currently, there is pain all around. Identify the clients’ pain and explain how your services can help reduce some of the pain that seems to be everywhere these days. Identify and reduce non-essential expenses.
Increase customer service
– Send thank you letters to existing clients, thanking them for their loyalty in hard economic times. Take added measures to ensure that customer service is better than ever so that you can retain the clients you do have. Increased customer service is one of the only ways to add value without actually spending money.
Hang on to star employees
– Your employees have financial problems of their own during an economic downturn, and their first allegiance will be to themselves and their families. In you have cutbacks, don’t lose sight of compensating and treating your best-performing employees well, or they will look elsewhere.
Utilize technology
– Technology may provide some solutions for streamlining some expenses. Determine whether any of your business operations can be automated. Use email, telephone calls, and video conferencing to save clients money on travel expenses. Optimize your search engine placement by updating and expanding your search terms. Start a blog and make regular entries. With each entry you increase your footprint on the web, and increase the likelihood of being found.
Innovate
– The tendency of many businesses is to lick their recessionary wounds during a downturn. However, hard economic times provide new marketplace realities that yield new opportunities. Seek to understand the new economic reality and find a niche. By staying forward-thinking while others are focused on the dismal present, you may grow exponentially relative to the competition.
Increase your skills
– Hard times may leave you with more time on your hands. Use this time to increase your skills. Continue to attend conferences, read books, and attend professional networking events. This will keep your relationships vibrant and ensure that you remain on the cutting edge of your field.
Offer payed sabbatical
– Hoping to retain talent and cut costs, some companies offer payed sabbatical. This entails letting an employee stay out of the office, at a fraction of their salary (typically 25%), while business is slow. When business picks up, the employee is guaranteed their job back at the original pay scale. This allows companies to cut costs without the loss of morale that accompanies more traditional layoffs.
CFO Partner with others that have synergistic aims
– Unfortunately, many companies become increasingly insular during difficult times. By partnering with others with synergistic aims, businesses can share information, maximize resources, and form valuable new relationships. This provides all parties a smaller piece of a bigger pie.
Reserve discounts and maintain prices
– Slashing prices will reduce profit margins and dilute your brand. Avoid getting in a bidding war with the “Wal-mart” of your line of business.
Offer employees non-monetary incentives
– Offer employees incentives such as extra vacation, reduced work hours, and casual days in lieu of cash incentives. These incentives allow you to maintain your liquidity while showing your employees that you want to reward their hard work.
Renegotiate contracts
– This is no time to have excess office or warehouse space. If possible renegotiate your contracts in a way that provides your business adequate room without overspending on wasted space.
Free up cash flow
– Now is the time to call in old debt. Approach those that owe you money in an attempt to increase your liquidity. Doing so will ensure that you are able to pay your employees in a timely fashion and remain committed to a marketing strategy going forward.
Look to expand
– Be alert to ways in which others’ loss may be your gain. Have competitors lost talented employees or good clients? Is there a piece of business that you might not previously have been able to afford that is now within reach?
Strengthen relationships
– Your clients will remember who stuck by them during difficult times. If you can prove valuable to a client during a tough stretch, you will have won a loyal client for life. Adversity often forges tighter alliances than do times of prosperity; take advantage of this fact.
Give back
– Volunteering as well as staying involved in civic and religious groups increases face time with potential clients. Additionally, it boosts employee morale and gives perspective during trying times.
Diversify
– The more services you offer the more clients you will be able to reach. Try repackaging existing products or services in such a way that you can reach new clients.
Offer a referral reward program for existing clients to incentivize giving referrals.
Organize and energize your staff
– Reassure them within reason and keep them abreast of changes in the marketplace and within the organization. Uncertainty and fear are distractions, and will negatively impact their morale as well as their performance. You can effectively combat these distractions by keeping them in the loop.
Continue to advertise
– Many businesses cut advertising budgets first but the effects of doing so can be disastrous. Reassess your advertising strategy to ensure that each dollar spent is resulting in a return for the company. Focus advertising on any products or services you have that are “recession-proof” or assist clients in the economic situation in which they currently find themselves. Streamline and tailor your advertising, but do not cease advertising altogether. A part-time CFOwe know well stongly advises his clients to cut everything but advertising.
Learn from the past
– Revisit the history of your business. When have you faced tough economic times in the past? Which strategies worked and which did not? Research mistakes and successes of others. What has the competition done historically that has proven effective in lean times?
Tie compensation to productivity
Maximize profitability
– Which of your products or services provide the largest profit margin? Examine your lines of business and identify the most profitable among them. Seek to funnel business in the direction of your most profitable goods and services.
Be positive
– Some of the most successful industries during the Great Depression provided non-essential services. Certain entertainment industries thrived as people looked for respite from their day-to-day concerns. Stay positive when interacting with clients and employees and seek to be the bright spot in an otherwise bleak economy. Over-communicate good news and be sure to let your employees know of any successes that arise.
Negotiate
– Try and get better deals with suppliers. Remember, they are trying to hang on to your business during the downturn.
This report represents a synthesis of ideas taken from articles found in Business Week, The Wall Street Journal, CNN Money, morebusiness.com, steveshapiro.com, midmarket.eweek.com, smsmallbiz.com, powerhomebiz.com, reuters.com, ehow.com, ezinearticles.com, and white papers from the Pennsylvania Small Business Development Center as well as Deloitte and Touche.
Believe it ot not, there are a lot of things your business can do to make the loan request process smoother with banks. The following blog gives a good list of 10 things you can do pretty quickly: http://www.allbusiness.com/banking-finance/banking-lending-credit-services-commercial/10206901-1.html