Don't Just Survive: Help Your Business Thrive in 2008
Alan Guinn
January 09, 2008
Business, by its very nature, is cyclical. Just ask any small business entrepreneur, or any Chief Executive Officer of a major corporation: many trends exist in common, regardless of the size of the venture.
The rhythm of business historically follows patterns created by external trends—and in 2008, many different elements of influence are congruent, creating fear and anxiety throughout much of the business community.
The end of 2007 subprime mortgage debacle caught lenders off-guard, and proved that conservative lenders who had been decrying the lenient lending standards were—in fact—at least partially right. Many borrowers extended themselves and their families beyond acceptable levels, and have found their homes in jeopardy.
Easy credit may not be as prevalent in 2008, but wait until 2010 or 2011. Cyclically, less stringent credit terms will again become available, based upon improving banking conditions. Worldwide business has a short attention span, and an even shorter memory.
But if a business owner looks critically at 2008, with huge daily variations in the equities markets, spikes in precious metals and tightening credit terms, and wants to improve his or her situation, what are the most obvious things which can be done?
Surprisingly enough, quite a bit can be done to improve the business, the cashflow and the business credit rating.
The first thing is this: Don’t panic.
Panic has pushed more business owners into bad decisions than anything else. Adopt a financial posture of “next day decisions.” If a decision regarding financial impact to the business can be postponed a day, do it. Don’t feel like every decision must be made immediately. Think through the options and be certain the decision being made is a sound decision. If spending cash is truly an option today, why not simply put off the purchase? If the purchase---which is critical---truly is critical, will the price increase tomorrow, or the next day, or next week?
Next, it’s time to take a realistic look at the level of business debt being carried by the business. How much debt can the business carry?
A good rule of thumb is that the current debt of the business should not exceed 30% of the monthly revenue. The long term debt of the business should not exceed 10% of the annualized revenue. Some businesses carry more debt, and some carry less, so its important to check with the company Accountant or CPA to determine if the level of debt is appropriate to the current revenue.
One of the ways that immediate financial results can be achieved is by implementing a full P&L review process. Small businesses often don’t complete a Profit and Loss Statement more than two or three times a year. Larger businesses complete P&Ls every month. Every business should do P&L Statements on a regular basis to determine areas for improvement and to reward excellent business performance. A regular P&L Review will also allow those key employees to understand the debt structure of the company, and to begin to minimize debt. In lean times, cash is important; any restructure of debt should result in additional cash to the business.
A third way to thrive in 2008 is to lease everything you can, wherever available. Leasing generally allows the business to record the costs incurred off balance sheet, and minimizes the front cash required to secure equipment, inventory, or—believe it or not—even employees.
Employee leasing is a fast growing opportunity, growing by over 20% per year. It’s a way to outsource not only the employee contingent of the business, but generally the organizational aspect of employees. Most employee leasing groups handle all the Human Resources function for the funds expended.
The fourth way to minimize costs and thrive in 2008 is to outsource any key result area of the business in which the business does not have demonstrated core competencies. This might be in HR, in Marketing, in Advertising, in IT. All are areas which have opportunities for outsourcing employees and/or support. If the business owner isn’t trained in IT, why would he or she make a software decision without benefit of experience?
When discussing outsourcing, recognize that outsourcing doesn’t necessarily mean to send jobs overseas. It may or may not be critical that the customer service group be outsourced to India or Brazil, for example. What is important?
The most important part of any outsourcing arrangement is that the group supporting the business must understand the business core competencies, how the business operates, and what are the end results desired. Moreover, the outsourced group must be able to support the core competencies for which it is working with quality and integrity.
Cyclical business downturns aren’t fun—but they aren’t quite the end of the world, either. Business owners learn new techniques, they improve management style, and they focus more on business success during business downturns.
In 2008, however, the idea is not just to survive—but to thrive!
The rhythm of business historically follows patterns created by external trends—and in 2008, many different elements of influence are congruent, creating fear and anxiety throughout much of the business community.
The end of 2007 subprime mortgage debacle caught lenders off-guard, and proved that conservative lenders who had been decrying the lenient lending standards were—in fact—at least partially right. Many borrowers extended themselves and their families beyond acceptable levels, and have found their homes in jeopardy.
Easy credit may not be as prevalent in 2008, but wait until 2010 or 2011. Cyclically, less stringent credit terms will again become available, based upon improving banking conditions. Worldwide business has a short attention span, and an even shorter memory.
But if a business owner looks critically at 2008, with huge daily variations in the equities markets, spikes in precious metals and tightening credit terms, and wants to improve his or her situation, what are the most obvious things which can be done?
Surprisingly enough, quite a bit can be done to improve the business, the cashflow and the business credit rating.
The first thing is this: Don’t panic.
Panic has pushed more business owners into bad decisions than anything else. Adopt a financial posture of “next day decisions.” If a decision regarding financial impact to the business can be postponed a day, do it. Don’t feel like every decision must be made immediately. Think through the options and be certain the decision being made is a sound decision. If spending cash is truly an option today, why not simply put off the purchase? If the purchase---which is critical---truly is critical, will the price increase tomorrow, or the next day, or next week?
Next, it’s time to take a realistic look at the level of business debt being carried by the business. How much debt can the business carry?
A good rule of thumb is that the current debt of the business should not exceed 30% of the monthly revenue. The long term debt of the business should not exceed 10% of the annualized revenue. Some businesses carry more debt, and some carry less, so its important to check with the company Accountant or CPA to determine if the level of debt is appropriate to the current revenue.
One of the ways that immediate financial results can be achieved is by implementing a full P&L review process. Small businesses often don’t complete a Profit and Loss Statement more than two or three times a year. Larger businesses complete P&Ls every month. Every business should do P&L Statements on a regular basis to determine areas for improvement and to reward excellent business performance. A regular P&L Review will also allow those key employees to understand the debt structure of the company, and to begin to minimize debt. In lean times, cash is important; any restructure of debt should result in additional cash to the business.
A third way to thrive in 2008 is to lease everything you can, wherever available. Leasing generally allows the business to record the costs incurred off balance sheet, and minimizes the front cash required to secure equipment, inventory, or—believe it or not—even employees.
Employee leasing is a fast growing opportunity, growing by over 20% per year. It’s a way to outsource not only the employee contingent of the business, but generally the organizational aspect of employees. Most employee leasing groups handle all the Human Resources function for the funds expended.
The fourth way to minimize costs and thrive in 2008 is to outsource any key result area of the business in which the business does not have demonstrated core competencies. This might be in HR, in Marketing, in Advertising, in IT. All are areas which have opportunities for outsourcing employees and/or support. If the business owner isn’t trained in IT, why would he or she make a software decision without benefit of experience?
When discussing outsourcing, recognize that outsourcing doesn’t necessarily mean to send jobs overseas. It may or may not be critical that the customer service group be outsourced to India or Brazil, for example. What is important?
The most important part of any outsourcing arrangement is that the group supporting the business must understand the business core competencies, how the business operates, and what are the end results desired. Moreover, the outsourced group must be able to support the core competencies for which it is working with quality and integrity.
Cyclical business downturns aren’t fun—but they aren’t quite the end of the world, either. Business owners learn new techniques, they improve management style, and they focus more on business success during business downturns.
In 2008, however, the idea is not just to survive—but to thrive!
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