to survive recession
by JOHN F. HASER III
With the boom of the late 1990s giving way to the bust of the early 2000s, many Central Pennsylvania businesses are looking for ways to ride out the latest economic storm. Though there is no one way to make your business recession-proof, some local financial and marketing firms are helping their clients find ways to deal with the looming recession.
Jim Gante, a certified public accountant and director of small business services for York-based Stambaugh Ness P.C., says businesses need to first complete profit/loss and cash-flow plans. The profit/loss plan compares sales with expenses and estimates each for the coming year. He suggests looking back several years for trends. He adds that it is important to make an honest assessment.
“Typically,” he says, “people are optimistic, and that’s when things start to fall apart.” The cash-flow plan works off the profit/loss plan and takes into account the fact that cash isn’t always received at the time of a sale and that many expenses are spread out across time. The plan will help a business improve its cash flow and avoid liquidity problems.
Cindia Gottshall, a CPA with the Lancaster accounting firm Simon Lever & Company, agrees that businesses should stay in touch with advisers. She believes companies need to budget realistically with an eye on justifying all expenses, although she says, “During hard times, it’s hard to know where to cut costs.” She suggests doing “disciplined” cost-benefit analyses on capital expenditures.
Businesses also need to consider cutting expenses and increasing capital. This could include selling assets that aren’t useful, such as vehicles and older equipment, or selling off excess inventories at reduced rates, according to Gante.
Cutting staff can cut costs, as well. “In a slow time, that extra person is going to kill you,” he says. Alternately, businesses can reduce employee costs by instituting shorter shifts or through pay cuts.
Gottshall points out that vital employees need to be retained. “Employees are a company’s greatest asset,” she says. “A good way to save cash is by minimizing employee turnover.”
Many companies look to their marketing budgets when it comes time to cut costs. This is a mistake, says Carol Aubitz, who owns Excelsior Marketing in Lancaster. “A number of companies have done this,” she says. “To them it is a discretionary expenditure. But money spent on marketing brings in new customers and maintains existing ones.”
She suggests that companies re-examine their positions in the market and change the manner in which they promote themselves. “You need to look at what you sell,” she says. “Is it a necessity or a luxury? If it is a luxury, you may want to sell it more as a necessity.” She adds that companies should not try to change the way consumers perceive their products, just stress different aspects. It is also important to work closely with existing customers. “In a slow economy, it’s more expensive to get new customers,” Aubitz says. “Take a look at adding value to an existing customer.” She suggests rewarding customers for referring new ones or offering incentives to existing customers to increase sales with them.
Businesses also need to keep a tight grip on collections, but be prepared to work with companies that may get behind in payments. However, Gante points out that “you don’t want to be the one financing somebody else’s slow time.”
This may also be a good time to cut costs by renegotiating leases and reviewing agreements with creditors, such as service providers and landlords. Aubitz reminds business owners that they should be careful to consider what their actions will do to their relationships with providers.
One good side of an economic downturn is lower interest rates. Companies may be able to look at refinancing debt to cut costs or extend credit. It may also be a good time to lease or purchase new equipment. Gottshall says businesses should closely compare options, though he notes that leasing will probably keep more cash in the business.