Survival Of The Fittest
I'm sure as a small business owner you are being challenged in this current economic environment. The downturn in the economy, the massive debt of local and federal governments, and all the gloom in doom on the news has created a challenging environment to stay afloat in, let alone grow. The biggest challenge that I have noticed in the small business environment is the lack of available credit. I've noticed that while a number of businesses are struggling, many are thriving in the current situation. I believe the difference lies in the distinction and reality of owning and managing a well run, fundamentally sound business, and one that is not.
Many business owners have been "living a lie" so to speak with respect to their business. What I mean by this is that the environment of easy credit has given rise to business owners that have forgotten about good business fundamentals, and have been using large amounts of credit to hide poor practices by supplementing their cash shortfalls with lines of credit, and in some cases, even personal credit cards. Now that the economy has taken a downturn, and the free and easy credit market has dried up, many of these businesses are facing extinction. If you are a small business owner, here is what you need to do to survive and thrive in this economy:
Get Control of Your Cash Flow
In it’s simplest form, a good business runs by the following equation:
Revenue – Cost = Profit
In recent times, I’ve seen many businesses instead follow this formula:
Revenue – Cost = Debt + Additional Credit = Break Even
In this situation, the business owner is “living a lie”. The revenues coming in are less than the cost to run the business, so you have a negative cash flow situation. This is the number one reason a business goes out of business. Now, here is where the lie comes in. By supplementing the situation with additional credit, the business is able to stay afloat. However, over time, the debt is compounding, turning a bad situation into a much worse one.
The first step to getting this situation under control is to increase the cash flow into the business. You can do this in a number of ways:
- Collecting money from customers that haven’t paid you
- Delaying your payment to your vendors
- Restructuring your current debt
- Cutting expenses
- Increasing your sales
By getting your cash flow back under control, you’ll have a solid base with which to build from.
Increase Your Profitability
This is really about getting your business back into practicing sound fundamentals. You are in business to make a profit! The way to do that is to increase your revenues, and decrease your costs. It’s that simple. In order to accomplish this goal, you really have to understand where you are with respect to your cost structure, as well as your revenue sources. Sit down with your CPA and determine where you can make some cuts. Determine what you can do to improve your sales and marketing efforts, and bring in more business.
One key is to really look at the revenue side of the business. Many businesses make the mistake of assuming that they can’t grow. Don’t sell yourself short in this area. Having a large revenue stream gives you the ability to rapidly grow your profits. With a strong profit margin, you’ll be able to invest in your business and take market share, which is exactly what the companies that are thriving are doing right now.
Improve The Management of The Business
In times like these, you may have to take some extreme measures to allow your business to survive. Here are some things to consider:
- Lay off non-performers and/or upgrade your talent
- Raise your standards and performance metrics
- Find a radically different way to do business
- Upgrade your sales and marketing efforts
- Stop offering products or services that aren’t extremely profitable
- Put in better cost controls
- Put the entire staff on performance based pay programs
- Improve your systems
- Get out of your industry altogether
While these may seem like extreme measures, taking massive action is often required to survive. If your business is currently in trouble, burying your head in the sand isn’t going to help. Getting real about the situation and taking massive action will help you to not only survive, but thrive.
Remember, "survival of the fittest" is all about getting back to fundamentals and sound business practices. So, stop "living a lie", get back to basics, and watch your business grow and thrive as you move forward!