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June 2008 — Vol. 86, No. 5
COVER STORY
Be ready to rally when
the economy does
See the downturn as an opportunity to make your business better.
Related article:
Don’t think about surviving the recession — think about thriving in spite of it, or perhaps even because of it.
That’s the advice of several small-business experts, including company owners whose businesses have come through past recessions.
“The mistake most businesses make during a recession is, they dig their heels in. They take a timid approach when they should be doing things to drive their business forward,” says Patrick McGuigan, assistant professor of management in the entrepreneurship program at the University of Hartford’s Barney School of Business. McGuigan — himself the owner of a small business in Stamford — advises: “Continue doing things to grow your business according to your business plan. The companies that came out of the Great Depression really well were those that stuck to their business plan.”
Peter Kent, CEO and chairman of Bicron Electronics Co., a small Canaan manufacturing business established in 1964, agrees. The ability to succeed during a recession “stems from your business model,” he says. He recommends having diverse products and markets so that when one is in a slump, you can still rely on the others.
“Providing unique products or services, offering exceptional service, and bringing value to customers” are among the keys to succeeding despite a recession, according to Mark Charette, CEO of Rocky Hill–based Solidus Inc. The 43-year-old family business provides office design, construction, furnishings and related services.
Charette acknowledges that a recession is a challenge, but one he doesn’t shy from. In a way, “recessions are good,” he says. “When things are great, you can become complacent. A downturn focuses your attention on what really matters. Looking back at the three recessions we’ve been through [since he took over in 1989], they’ve made us a better company.”
‘It’s the economy’ — or is it?
McGuigan recommends that businesspeople keep things in perspective. For one thing, Connecticut’s economy, although not robust, is still doing better than the country’s as a whole.
What’s more, “Just because the economy is in the doldrums doesn’t necessarily mean things are bad for you or your industry. We can get too caught up in news about the economy. We ascribe what’s happening on a macro level to what’s happening to us.” But, he adds, “The general economic environment accounts for only 14% of a [publicly traded company’s] stock price.”
A business that isn’t doing well might be tempted to blame the economy, when some other factor might actually be the culprit. McGuigan tells of one business owner whose poor treatment of customers — not the sluggish economy — drove customers away.
As Charette puts it, “Healthy companies with good business practices weather recession. Weak companies that have bad business practices fall off the board.”
Time to reassess
Regardless of whether your business is strong or struggling, the shaky economy does call for heightened attention to your business practices and strategies.
“It’s a great opportunity to re-evaluate your situation,” says McGuigan. “I can’t emphasize enough [the importance of] having a fully documented business plan” that addresses questions such as: Why should people come to you? What’s your value proposition? Is your business aligned in way that supports your value proposition? “Have a plan and work consistently toward it,” he says.
Kent advises, “Monitor your key metrics so you can react quickly if there’s a problem. The last thing you want is a major surprise.”
“When faced with a difficult economy and falling revenues, you need to look at your internal processes,” agrees Charette. “Ask yourself, ‘How can we do it better, be more efficient?’ Right now, we’re doing extremely well. But as a business owner, I’m constantly asking our CFO, ‘Are we efficient? Are we watching our expenses?’”
Small business experts also recommend taking the actions described below.
Money matters
Ensure adequate cash flow. “You don’t want to run out of cash — that’s the No. 1 reason why businesses fail,” says Dr. Susan Coleman, Ansley chair of finance at the University of Hartford’s Barney School of Business. “Do a monthly or weekly cash budget so you know when cash will be coming in and when it will be going out.”
Justine Daunis, senior vice president for the business banking division of TDBanknorth, says, “If you don’t accept credit cards, consider doing that because that eliminates collection problems. Your cash flow will improve, you won’t have to make calls, and your invoices will be paid on time.”
If you have a line of credit with a bank, make sure it’s sufficient to meet your anticipated needs, she recommends. If it’s not, ask your bank to increase your line of credit before you need the money.
Although having a relationship with only one bank is usually sufficient for a small business, Coleman says, “In an economy like this, with tight lending, it might be a good idea to develop a relationship with a second bank” so that you have another funding source to turn to if necessary.
Henry Reed, a Small Business Development Center (SBDC) business specialist at Eastern Connecticut State University, suggests talking to your creditors or suppliers about the possibility of stretching your payment due dates, which would allow more cash to stay in your business longer. “Most creditors and suppliers will work with small businesses,” he says.
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