Lately, I have been getting calls from a lot of frustrated and concerned clients about how to get the engine going again with their businesses. When advising clients, I first need to make sure they understand what “the new normal” is and then adjust their strategic business plan accordingly.
Following are my observations of what “the new normal” is and what small business will have to contend with going forward:
Bank financing will be difficult to come by, and struggling businesses are going to have fewer options for getting help from the banking community, which will lead to more failed businesses and bankruptcies.
Intense competition from big business will continue to put pressure on profit margins, which will make your small business community struggle even more.
Labor control will be an ongoing issue, and unemployment will remain high for some time to come.
Now that I have painted a picture of what some of you might perceive is “doom and gloom,” let’s talk about how to “turn lemons into lemonade.”
First of all, let’s talk about how to deal with your friendly banker. In the past, loan covenants and government regulation were considerably less restrictive than they are today. Knowing that this is the case, what are the best ways to be pro-active with your banker to make sure you will have the best chance of not having the carpet pulled up from underneath you?
Make sure you have a believable strategic business plan that shows your knowledge of the product lines served by your company and how you plan on competing in the future.
Work with your financial and business consultants to develop a believable and supportable budget and forecast model. Understanding that money is tight, you need to make sure you use the right individual(s)/consulting firm to help you with this process. This may or may not be your existing accounting firm; hiring specialists who do this type of consulting work for a living is a must.
Consult with your banker on a more frequent basis, making sure to advise him or her of potential problems on the horizon. By doing this you will have developed a true friend who can support you in tough times. The worse thing you can do is to hide or avoid your banker.
Next, how do we fight “big business,” particularly when they are constantly cutting prices, forcing small business owners to be more competitive in order to maintain or grow market share? This is a real challenge not only for the retail or manufacturing industries, but for personal services such as accounting, legal, engineering, etc. Some of the steps that need to be taken in order to make you more competitive in the market place and maintain market share include:
Price versus volume—if price is taking a hit, then volume has to increase in order to maintain your bottom line.
Marketing has to be smarter and innovative. This is an area you may need to beef up in order to capture bottom line dollars that need to be recaptured by having volume increases. If you don’t have an effective internal marketing department it becomes essential that you go outside and get some help.