Dear Jayme,
Things are looking pretty scary. I'm thinking that I ought to scale back, cut my expenses and just hang on until the economy picks up, but is there an alternative way to deal with what's going on?
Dillon
Dear Dillon :
A common reaction to economic slowdowns is to get scared, freeze the business and hibernate until the economic springtime comes. That makes the future a simple question: Will your cash run out before the recession ends or not?
If you're comfortable with the answer, that's fine, but you can improve your situation and emerge from the recession in far better shape than when you went in, mostly by taking action while your competitors are snoozing.
You can't, however, expect to pull this off by charging into battle overweight and out of shape. Your business has to be in top form, and that means being the most efficient, lowest cost player with a reputation for unwavering service and performance.
A few pointers:
- Know your business inside out: Vague ideas about cost structure and operating results won't cut it. Are you sure your bids aren't leaving a single dollar on the table? You can't tell unless you know your cost structure in detail. Are your scheduling, manpower and/or routing methods as cost-effective as they could possibly be? In the best of times, you need to know this stuff, but in the tight periods, there's no alternative. Robust financial and operational systems are key to providing solid data to support your decisions.
- Streamline and improve your business operations: The same systems that provide the data are also essential to making your business efficient and cost-effective. Your business must be consistent, predictable and reliable. Haphazard, or incomplete processes won't produce those results. Hire a pro to help if need be, but now's the time to get solid systems in place.
- Know the most about cashflow: Cash is always critical and even more so in a recession. If you understand cash management better than your competition, you'll be way ahead of the game.
- Be the absolute best: In a down economy, it's tempting to cut corners to keep costs down, but don't. There will always be customers who only care about price, but a tight market is no time to have a reputation for "iffy" quality, and it's hard to rebuild that reputation once good times return.
- Attack your market: The pie is smaller, you need a bigger piece, and that won't happen without action on your part. If your competitors are too scared to market themselves, that makes it far easier for you to make yourself stand out, but use a marketing system rather than a scattergun approach.
- Be on the lookout for bargains: Weak, cash-poor competitors are forced to sell off assets at fire sale prices. If you're clever about cash, it's a great opportunity.
Do these things, and you end up with a top-flight operation that can bid low, make money and is run by systems (instead of you doing it all). Most of these things require cash, but every single one is a leveraged investment, not an expense. They'll all provide long-term benefits far beyond the recession.
There's no doubt that business is more scarce, and it's easy to get nervous. Keep in mind that great fortunes were made in slow times as the savvy and level-headed took over their weaker, panicky competitors. There's lemonade in the lemons, but you won't get it if you don't squeeze.
Construction Business Owner, January 2009
