4 Principles of Recession Survival For Businesses

The recession is here - but that is no reason to panic. We have been through many downturns in the past and I can guarantee that we will see many more in the years to come. Business is cyclical. There are times of great prosperity - always followed by downturns. Followed once
again by - upswings!

It is what it is. You can dwell on it and blame it for all your woes. Or, you can take control of your business and make it work - in spite of the current conditions.

The truth is - the problem isn't the recession . . .

It's how you react to it.

Do you look at the current market conditions as a problem or do you look at them as an opportunity?

I, personally, believe they are an opportunity. And I believe if you approach things with the right mindset you can not only survive, but actually thrive. And, in doing so, set yourself up to lead your market when things begin to pick up again.

The truth is anyone can survive and grow in a booming market. When there is demand galore, it doesn't matter how you market yourself or how good your product is, someone will buy it. If the growth is strong enough, there are even people who will jump into the fray who have no idea what they are doing. As an example, look at the mortgage industry through the early part of this decade - it was filled with fat and unscrupulous brokers (just trying to make a buck).

But when the pendulum swings the other way - oooh, look out. To survive in a recession, you actually need to have business savvy (or at least understand some the basics of business), a quality product, and excellent customer service.

Look at the mortgage / banking industry now! Since the collapse of the housing market there are over 200 well known mortgage companies that have gone under (big and small) - declared bankruptcy and left the business. Do you think they are the strong ones - or the weak ones? It is true market "Darwinism" - and the herd has been thinned out.

There is no magic way to survive during a recession - it is simply doing the things that every business should do all the time, but most businesses are too lazy to stay focused on - when the cash is flowing in.

I've been working with small businesses from varying industries and marketplaces for the past two years. I've also been doing some thorough research on down-turned markets in the past and how best to survive them. The trick to surviving can be reduced to 4 Principles of Sounds Business. Those principles are:

- Cash is king!
- Take care of your customers or someone else will!
- Deliver a consistent product / service every time!
- Marketing the smart way!

But. . . before I break these basic principles down for you, let me give you one other principle that applies as much to life as it does to business.

That additional principle is that all things being equal - there is an inverse relationship between spare money and spare time. It's rare to have both - money and time. So when money is down, you need to take advantage of your available time to make money. And when business is booming, there is rarely enough time to do the things you want to do, but plenty of money to pay someone else to do them.

So when sales are down (as they usually are in a recession), and there isn't a lot of work for you to do "in" your business - that is the best time to work "on" your business. And prepare it for the long road ahead. That may sound obvious, but most people don't seem to take advantage of the slower sales / customer traffic to do the work that needs to be done o create new business both today and in the future.

You see, when sales are up, you tend have a lot excess money and very little spare time. So you spend, spend, spend to get things done. But when things slow down, the opposite is usually true. The trick is to take advantage of the slow time to improve your business - apply the four principals to your business, survive the downturn and prepare for the big upswing that is forth coming by having a better run business.

Now, let's break the original Four Principles down a bit further.

Cash is king!

In any business cash is important. But during a recession, the businesses that have a ready supply of cash are going to thrive more than any other. Why is this more important during a recession than during a growth stage? Basically cash is more important during a downturn because credit becomes increasingly hard to come by - everyone is hurting and Banks / Lenders understand the importance of cash more than anyone.

There are many cases when profitable businesses go out of business because they failed to manage their cash flow properly. Don't let this happen to you. Look at your cash flow and begin to figure out where you can make adjustments to both accounts receivable and payable to ensure a healthy cash flow throughout your year.

Take care of your customers or someone else will!

During a downturn, most businesses will struggle and many will go out of business completely. This means that when all is said and done, you should have more market share after the downturn than before - though your sales may fall off. So, just because you might start gaining customers from others misfortunes - or misgivings, the one thing you do not want to do is lose your existing client base.

Your current clients are today, and will be for the coming months, your life blood. Take care of them. Nurture them. And by all means, make sure they know how important they are to your business.

And if you see them starting to leave - stop them! Get them back in your store - at all cost.

Deliver a consistent product / service every time!

The truth is, whether we are in a recession or not, for most small businesses across America (especially following the holidays) sales are slow and time is plentiful. The early part of the year tends to be a "breather" time for many businesses from retail to manufacturing.

Retail sales are down, so most retailers are cutting back. And most manufacturers are either re-tooling or re-evaluating for the coming year. So, take advantage of the slower times to build the systems and procedures that will enable you to deliver consistent products / services regardless of your staff.

The trick to long term success isn't being able to produce today - but to be able to produce a consistent product today, tomorrow and next month. If you product is hamburgers, make sure that everyone tastes the same, and the experience the customer gets every time is the same. If you product is mortgages, and one of your marketing elements is turnaround times for brokers, then make sure you can consistently deliver what you promise.

This requires strategic planning - to not only make sure you can deliver today - but also making sure you can deliver consistently on your promise during spikes in business as well as slow downs.

Make Decisions Based on Actual Measurable Facts - Not Gut Feelings!

All too often, small business owners will tell me "sales are down". I have no doubt that they are. But . . . the follow-up up questions is usually, how do you know?

Now, if they are able to pull up sales numbers quickly, I'll take it one step further and ask them Why? or Where are they down? To that question, I rarely get an answer. And without it, the right solutions to the problem are very difficult to come by.

Let me explain. So, what if we are talking about a phone sales company. We look at the data and overall sales are down 10%. That's bad right? Could be, but what if the product you main product is selling for 15% less this year than last year and overall volume is up 3%? Is that bad or good?

Or, what if new customer sales is up 100% and repeat customer sales are down 25%?

What problem needs to be focused on then? Or what if those numbers were reversed - what problem should you come up with a solution for?

Everything comes down to numbers and looking at them objectively - no matter how painful it might be. But I can tell you this - it might be tough looking at the numbers now and facing the facts that they present to you - but it is far better to find out the real truth now, when there is time to fix it, than in bankruptcy court, when you can only say to your lawyer, "My gosh, if I had only realized that back in December 2008, things would have been much better."

Over the course of the next four months, I will be taking these concepts and drilling down deeper so that you can make sure you know how best to apply them to your unique situation.

Stimulus Bill: What's In It For The Entrepreneur?

Reading what is directly spelled out in the Stimulus package is great. US News at the following link will tell you all about what is specifically offered in the Bill. But the more important questions is "What does it mean to Joe Average Small Business Owner?"

So let's take a look at some of the basic numbers in the small business world. It is estimated in an average year, nearly 1,000,000 small businesses will open. And even in a good year, 400,000 of them will close before their first anniversary. Additionally, another 400,000 will close within the following four years. How much wealth will be lost from all of this failure? And how much will this or any other "stimulus package" actually help these small businesses?

If you add it all up, according to that article from US News, there is all totaled $2.850 Billion in grants and loans that is being funneled to Small Businesses. It may sound like a lot when written out in the article above, but the truth of the matter it's a drop in the bucket - providing nealmost arly nothing of any real consequence to any business. Literally, it is only $2,850 for each of the businesses that is going to try to get started this year (not to mention the other tens of millions already opened that are struggling).

Now let's look at it simply in the context of dollars per employee and how much more concerned the Government is in helping the Big Boys of Industry not fail and how little they will actually do for you. It is estimated that 500,000 small businesses (that includes both start-up as mentioned above and existing businesses) will close their doors / go bankrupt this year. Even if they only have one employee for each business (which is a gross under estimate), this stimulus will provide a total of $5,700 per employee. Not much, if you ask me. Now compare that to the $15 Billion that the auto makers were guaranteed (in loans) with only about 250,000 direct employees. That is about $60,000 per employee. And I won't even go into Citibank or Bank of America.

The truth is that even though the numbers that are being thrown around in the bill look enormous to you and me, they will hardly make a dent in helping small business owners survive the recession - or end up on the other side of the recession with any real viability. This "Stimulus Bill" may push some money into the economy - but money doesn't equate to wealth in this sense - and certainly won't really make a difference.

Don't get me wrong, I'm by no means endorsing this package or any other package. In my opinion, they are a mistake. Recessions exist as a backlash of an overly aggressive growth market that became fat with excess. Part of what needs to happen is that businesses and industries must clean up house. Strong, well run businesses will survive - weak, poorly run businesses won't. And that is a healthy thing, even though it will be tough on nearly all of us while we transition. Any Government stimulus will artificially delay the "house cleaning" that must take place in order for the solid growth to occur again, as well as give false hope to hundreds of thousands of small business owners across America.

The Federal Government won't put this in the Stimulus Package. But the truth of the matter is that the only thing that is going to help small businesses survive and thrive during the tough months ahead is focusing on basic business principles and making sure you provide a product / service that customers want and/or need and do it for less than it costs you to produce it.

Difference Between a Deposit and a Retainer

Today was my first seminar on the Four Critical Principles to Surviving a Recession (click here to read a short article about the Four Principles). And I was very pleased how it turned out. It was a smaller crowd than I expected, but the discussions were open and lively. And I think every one that attended learned something new from it.

The lesson I personally learned was the subtle, but significant difference between "Deposits" and "Retainers". Specifically, while discussing how to increase cash flow, I had suggested the idea of getting deposits for future work or even going into a retainer agreement with clients. The truth is, I hadn't really given the difference between the two terms a whole lot of thought. I understood that retainers implied a "hold of time" for the client, but had really thought much more about it, except that some professionals, like lawyers, accountants and coaches liked to work on "Retainer" while contractors tended to work with "Deposits".

The truth is that the two items have a very strong difference when it comes to "refundability" in the eyes of the court (in many instances). Now, don't get me wrong - I'm not a lawyer and even if I was, I wouldn't give legal advice through a blog. But I found the difference between the two words quite interesting and wanted to share it with you.

As it turns out, both terms are used for pre-payments of service. But, what I hadn't realized is that it is somewhat accepted that when it comes to "refundability", Deposits are considered to be refundable for services "not" rendered, whereas Retainers are not.

The reason for the difference is because it is considered that when you put someone on "retainer", they are setting aside specific time to provide services to you - time that cannot not be committed to any other client (you own that time). If you choose not to use that time, that is your fault - not the professional's fault. And thus there is no obligation of refund. However, when it comes to deposits, there is no implied guarantee of the professional setting aside time for you to do the work, and thus cancellation (unless specifically annotated is usually considered refundable).

Great stuff.

Thanks to all that came to the Seminar.