Economic Recovery Planning & Strategies
CFOs, controllers, and business owners recently gathered to discuss planning and strategies for the much anticipated economic recovery, which we all hope is coming sooner rather than later!
Assuming the economy is turning around relatively soon, businesses will quickly be facing different challenges than those experienced during the economic downturn. The following is a summary of the opportunities for planning, which were identified by the participants:
- Devise a plan before the economy turns around
- Think about the difference between "good sales" and "sales." (We'll give you a hint: "good" sales generate positive cash flow)
- Think about your product or service lines. Are they all generating cash flow, or should you explore spin-offs or divesture in some cases? Should you focus on core products that are in a niche or in demand?
- Think about your customers and which ones you should 'target' to keep
- Think about ways to diversify your customer base
After you have thought things through, develop a vision for what your business will look like after all the dust has settled and the economy has rebounded. With your "vision" in mind, prioritize plans that have been put on hold so you are prepared to hit the ground running when resources, such as cash, become available. Consider increasing sales and marketing expenditures first, as they will hopefully result in an increase in your share of the overall new business that is coming.
Reevaluate
Once you develop a plan, reevaluate your environment and your plan frequently.
Two-way communication!
Get several people (stakeholders) involved and engaged through two-way communication. Communicate with employees, vendors, and lending sources and show them the strides you are making to improve your business. This will probably include sharing more financial information with them than you have in the past. Sharing financial information will demystify financial problems and have a positive effect on these stakeholders. Make communication more frequent to keep up your visibility. Make communication more transparent to instill more confidence and trust in your company. Maintain a positive attitude and be sure to use positive reinforcement when communicating.
Communicate with your customers
Have an open discussion with customers. Educate targeted customers about "good deals" because they may forget two old sayings: "you get what you pay for" and "if it sounds too good to be true, it probably is." Educate your customers so they are able to recognize irrational behavior from your competitors who may be "buying" their business and thereby delivering shoddy products or services.
Find out where you are in the "food chain" with customers and see if you can move up. If you offer better customer service than your competitor, will customers have more loyalty to you in the future?
If you can, finance targeted customers who are struggling. You will hopefully earn their loyalty when business starts to pick back up.
For customers that are going out of business, call about receivables, even before they are past due, because the "squeaky wheel get's the grease."
Communicate with lending sources
View your lender as a critical supplier. Show them continually updated cash forecasts and be able to show them you need short term funding for growth, not funding to cover operating expenses/losses.
Communicate with all your employees
Make a change in your company's culture to involve more two-way communication. Communicate the company's plan for the future to instill confidence and keep up morale. Listen to your employees' ideas and get them engaged in helping your company succeed. Include employees in the solution and empower them.
Help your employees understand that even when the economy starts to turn around, the company can't fully "give back" concessions (i.e. reduced wages/salaries) until the recovery is more complete. Cash is still needed to stay afloat and grow with the growing economy.
Take time for one-on-one communication with employees if they are drastically affected by a change in the company (i.e. the spin off of a division).
Communicate with your own management group (including key employees) across functions
Get the management group and key employees involved and engaged by bringing together silos for open discussions. Let the management team know that funding growth through debt won't work; they will need to be creative and control costs, even if sales are up. Have the management group lead by example in their attitude and their spending. If management is asking employees to "tighten the belt" to conserve cash flow, then management should be the first to cut back on their spending.
The management of your company needs to be confident. Employees are looking to the company's leadership to see if they believe that the company's plans for recovery will work. If management appears unsure about the company's future, the employees will be unsure about the company's future and morale will suffer.
Communicate with your sales team (or anyone doing bidding)
Have regular meetings with your sales force to keep them on track with your vision. Tell them not to bid on every opportunity, but instead, target specific opportunities that are profitable. Get them thinking about "good" sales rather than sales. Track profitability as the sales increase. If an opportunity is not profitable, don't take it just to increase total sales.
As owners or top management, be more involved in all aspects of each sale, from lead, to sale, and following through after the sale.
Review your bidding process. A bad bid up front means you are losing money before you even begin a project.
Communicate with your accounting staff
Does your accounting staff have the proper accounting system to provide good data? Discuss financial data, such as cash flow projections, more frequently. Look at cash flow forecasts for each product or service line.
Even communicate with your competitors!
Explore joint venture arrangements, or analyze purchasing a division which is your core competency, from a competitor. Approaching a competitor who "dabbles" in something that is your core competency to purchase their customer base for that product or service may produce a win-win solution. They gain the benefit of cash flow from a product or service that was losing money while you gain their share of the market.
Negotiate the following NOW, while it is still a buyer's market (don't wait 6 months)
- All long-term contracts
- Leases
- Advertising / print marketing
- Insurance
Ideas to consider to INCREASE cash flow
- Bill your customers more frequently, such as twice a month or weekly, rather than monthly
- Utilize or negotiate payment terms whenever possible (i.e. insurance)
- Factor receivables to increase cash flow
- Negotiate deferrals with vendors (i.e. reduced rent during slow months and increased rent during better months)
- Renegotiate with vendors who have put you on C.O.D. Make a promise and keep it
- Dedicate an entire employee's time to collect receivables
- Get credit card information and permission from customers to use their credit card when they are late paying your invoices
- Get accounts receivable insurance
- This could help with the bank by increasing your borrowing limits
- This could help with negotiating with customers
- Negotiate to shorten customers' payment terms
Ideas to consider to DECREASE costs
- Outsource sales functions
- Outsource human resources functions
- Buy real estate rather than lease it
- Cut costs beyond break-even to create cash reserves
- Reinvent – Don't go back to "business as usual"
- Control costs, even as cash flow frees up
- Be more efficient
- Be better than you were before the downturn
- Have a vision for the future of your business
- Evaluate employees and develop their talents and strengths
Retaining employees under increased competition for talent
As the economy gets better, so does the job market. Many companies will be looking for talented employees once business picks up again. Here are a few ideas that may keep them from luring employees away from your company, without getting into a bidding war over their salary:
- Review your compensation structure (i.e. can you offer retirement plans or insurance benefits that your competition does not?)
- Can you offer vacation days your competition does not?
- Don't take employees for granted – express your appreciation for their hard work through difficult times
- Offer hard working employees more flexibility or a day off without using their vacation time
- Take a hard look at policies that were implemented during tough times and reevaluate them to see if they are no longer needed (i.e. amount of overtime required for salaried employees)
- Look for non-monetary incentives
