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Fit & Trim
All across the country in
small businesses of every
type, management is on a
strict regimen to cut
"fat." Nothing is sacred—employee hours are being whittled
back, nonessentials are skipped, and
companies are stretching resources to
cover the ensuing gaps. Yet scaling back
doesn't necessarily mean starving. Smart
companies are getting creative about
ways to slim down without sacrificing
the quality of their product or service
and, in many cases, creating a company
that is healthier for the long run.
The trick is to go about the reductions
in a controlled and well-thought-out manner.
What works for some businesses
might be a death knell for others. While a
law office or a plumbing business might be
able to pick up and relocate to a smaller,
less expensive space, a retail shop with a
loyal following doesn't necessarily have
that same option. Similarly, a computer
consultant might be able to pull back on
full-time staff without clients taking
notice, but an auto parts supplier that differentiates
itself on same-day service has to
find ways to tighten its belt without customers
feeling the pinch. "The idea is to be
smart and be able to come out of the day-to-day grind to get time to review this
stuff," says Bill Freedman, general manager
of P & A Auto Parts, a wholesale automotive
parts supplier with 11 stores in the
northern New Jersey area. "The truth of
the matter is, when times are good, you
don't think too much about these issues."
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"In this business,
your space is your showroom, so the less
merchandise that can be presented for sale,
the less revenue you’re going to make."
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SURVIVING A DOWNTURN
10 TACTICS FOR RIDING OUT A WEAK ECONOMY
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1
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Watch inventories carefully, but don't hold them down so tight as to lose sales.
Typically during a slowdown, there is an imbalance between slumping retail sales and
bloated inventories—don't be saddled with leftover merchandise that ties up cash flow.
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2
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Be diligent about monitoring cash flow, forecasting monthly to ensure that expenses
and planned expenditures are in line with accounts receivable. Make sure financial
statements provide information that is timely, relevant, and accurate. Be able to project
where you will stand three months in advance.
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3
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Negotiate with suppliers, contractors, and landlords for better prices or short-term
reductions and even consider trading goods and services on a barter exchange for
credits instead of for cash. Take advantage of supplier discounts for prompt payment,
and don't pay no-discount bills before they're due.
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4
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Separate the "nice to do" from the "have to do," and eliminate nonessential expenses
as much as possible.
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5
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Watch the creditworthiness of customers, even bread-and-butter accounts. Remaining
close to existing customers and checking to see how they are getting on during the
economic downturn not only helps avoid unpleasant surprises, but could also lead to
new opportunities.
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6
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Get aggressive with collections. Being tough with customers may be unpleasant, but
it's an important safeguard against the effects of a prolonged economic slowdown.
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7
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Take a hard look at capital spending. Consider delaying both the purchase of
high-ticket items and expansion plans that take a long time to pay off. At the
same time, make sure you have enough capacity to start filling orders again when
the economy stabilizes.
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8
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Look for opportunities to reduce rented space. If you acquired space in anticipation of
staff expansion that ultimately proved unnecessary, this may be a good time to sublet
that space—thus reducing overhead and generating extra income.
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9
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Be prudently aggressive in the marketplace. Actively seek out new business and add
a salesperson or an extra service to give you an edge over the competition.
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10
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Similarly, don't skimp on service and quality by being understaffed. Options include
freelancers, consultants, and part-time employees. One advantage of a slowdown is
that hiring gets easier because there are more candidates from which to choose due to
layoffs and other cutbacks.
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Source: Small Business Administration (www.sba.gov)
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Now that times are tight, however,
Freedman and countless other small business
managers are devoting hours to these
problems. One of the primary places P & A
has been able to shave costs is by experimenting
with creative scheduling tactics to
reduce the amount of overtime it pays fulltime,
hourly-rate employees. The company
hasn't reduced the number of employees in
its stores—in fact, it's expanded its ranks—but the staff now includes many more
part-timers rather than a complete staff of
full-time help. The move has significantly
reduced P & A's payroll expenses without
sacrificing its ability to deliver what it calls
"hotshot" service (delivery of a part in 30
minutes) to its best customers.
Michele Kahn PC, a general and commercial
sole proprietor legal practice in
New York, has filled some of its staffing
requirements using law school interns
instead of hiring full-time attorneys. A
new attorney hire, says owner Michele
Kahn, means outlaying salary on top of
such costs as malpractice insurance,
healthcare benefits, and office expenses.
Although interns can't do everything a
licensed attorney can, they've dramatically
cut down on Kahn's project and
administrative work for what amounts
to a very reasonable investment. Kahn
has also benefited from the weak economy.
"The quality of the [intern] applicants
has dramatically improved as the
market has gotten tighter," she says.
Outsourcing is another option. Kahn is
looking at using contract attorneys to
pick up the slack for some tasks, such as
court appearances, where an intern can't
help out. P & A's Freedman, for his part, is test-driving a company specializing in
delivery services, which may cut down
on expenses since the firm covers the
cost of its own vehicles, maintenance,
and insurance.
Flexible work arrangements are another
option for reducing costs. One New
England advertising agency recently averted
an expensive summer of hiring temporary
help to cover vacations by closing
down for the short week of July 4 and mandating
all staffers to take time off in that
window. Raybeam Solutions Inc., a technology
consulting company in Bedford,
Mass., last summer instituted a Friday
work-at-home, telecommuting day, which
started out as a way to reward long-time
employees in lieu of paying additional
compensation. The move ended up being a
fairly significant cost-cutting measure
allowing Raybeam to shave a chunk off its
monthly utility bills—as well as its Internet
and phone service expenses—as most
employees worked at home on that day.
"It's one of those things that has served a
dual purpose," says Dong Soo Anderson-Song, Raybeam's CEO. "It's let us save a little
bit, and it also makes people happy,
being able to work in their pajamas."
Scaling back on space, if possible, is a
way to cut out a sizeable amount of fat. But
before doing so, companies need to take a
long-term view of their business goals and
make the appropriate adjustments so the
decision doesn't haunt them when the
economy rebounds and they're back in
growth mode. If you're moving offices to
take advantage of lower rent, make sure
there are provisions for expansion. It's also
critical that a smaller space doesn't impact
your ability to conduct business on the
same scale. KD Computer, a computer
reseller in Reading, Mass., had this in mind
when it shrunk back from a 1,500-square-foot
showroom to tight 833-square-foot
quarters. With the amount of available
showroom space directly translating into
how much inventory the reseller could
stock and sell, Kathy Duncan, president, got
creative about how to organize the smaller
space to showcase the same amount of
wares. "In this business, your space is your
showroom, so the less merchandise that
can be presented for sale, the less revenue
you're going to make," she explains.
Duncan went to work setting up special
racks and cubby holes to display her inventory.
So far, sales haven't taken a hit.
Along with the big opportunities for
cutbacks are the everyday expenses that,
when reduced here and there, add up to
larger savings. P & A, for example, is
using fleet cards to get more control over
its fuel expenses, consolidating office
supply purchases to get a better rate, and
using credit lines to pay off bills quicker
to get discounts. Raybeam has delayed
the purchase of any major new computing
equipment and reduced the number
of employees it sends to expensive training
seminars. And at Signs and Graphics,
a sign shop and digital printer in
Nolensville, Tenn., employees take turns
cutting the lawn while owner Andy
Warner cleans floor mats himself instead
of using an outside service. Warner has
also reduced the number of phone lines,
cut back employee overtime hours, and
eliminated other nice-to-have luxuries.
All of this adds up to hundreds of dollars
of savings.
Asking employees to be active participants
in this kind of regimen is not as
tough as you might think. After all, with
so many small businesses struggling to
stay afloat, working for a leaner company
with its eye on the ball is certainly a better
bet than being unemployed or dealing
with yet another firm struggling with the
same issues. Says Warner: "Our employees
know times are hard, and there were times
when they should have been sent home,
but we got creative in finding other things
for them to do."
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