The news is full of it: “Run for your lives! The recession is coming!” Add this to the mortgage meltdown and it's a gloomy picture. But is the world really ending? And what should you be doing to weather whatever storm is coming?
First, understand that slow periods are as normal as red-hot ones. You can't control these gyrations, but you can control how you prepare for and react to them.
Much of the trick to surviving (and even prospering) in downturns involves getting your ducks in a row before the slow times hit. Even if you're already feeling a slowdown, you can still soften the effects.
If business already is slow, don't sit around throwing darts at your wall calendar. You've finally got time to do the work within your business that you've been putting off. I'm not talking about painting the office. I mean updating the accounting system or documenting your bidding process. These projects needn't be expensive or complex, and they'll pay you back handsomely and give you leverage later.
Upgrade operating and accounting systems
Cash management is critical during slow times and you need dead-accurate operational and financial information for this. If your current systems don't provide it, upgrade or develop them. This usually doesn't mean spending a ton on new software or computers. It means documenting your business processes and having solid reporting systems and operating policies in place.
It's about the cash
The bigger your war chest, of course, the longer you can survive. To be around next season you'll need enough reserve (or credit, but be careful) to carry you through a year of slow times. But you can lower this amount by becoming more efficient and using contingency plans (below).
It's also about the cashflow
Unless you have a solid in-house CFO or controller, you need a complete understanding of cashflow and cashflow planning. If you don't have it, find somebody who does and have that person show you exactly how it works in your business (not just in theory). Make sure you're getting a daily (or at least weekly) cashflow report with projections and check it before spending a dime.
Really understand your business
What's your break-even revenue with current overhead expenses? How about if you cut overhead by 30%? What business segments/geography are most profitable? Which cause the most callbacks, warranty issues or delays? Who are your most productive and profitable employees? Don't know? It's time to learn.
Have a plan
Create contingency plans that will allow you to rationally scale down and still remain solvent and/or profitable. If business drops to level “x” for 90 days, go to plan A. If it drops to level “y” for 90 days, go to plan B, etc.
Each plan should include detailed manpower, equipment, overhead, pricing, cash management and expense structures that you've analyzed to ensure they'll produce predictable results at various revenue levels. You'll be making decisions based on a clear understanding of their consequences rather than on incomplete data, intuition or fear.
Operating costs and cash should be addressed first, but there are additional tactics you can employ to buffer the effects of a downturn.
Investigate ways to use your existing equipment and crews in new ways. If you've been exclusively working new home construction, look at remodeling or commercial work. Check out a few nearby towns for business. But analyze the alternatives ahead of time so you can pull the trigger when and if the time comes.
Copy the successes
How does the long-lived competitor in your area make it through many ups and downs? Learn what they do and copy their methods.
Be the top player
Have bulletproof systems and people to help you do the job better, at lower cost, with higher quality and more quickly than anybody else. If you're stronger and more efficient, you'll be the last one standing. Darwin is always watching.
Sell out before the storm
Not my favorite, but if you absolutely know that a slump will wipe you out, want to retire anyway or are ready to try something new, consider selling the business sooner (while it's value is higher) rather than during the slump (when the value is in the toilet). But be aware: To be saleable, your business can't be dependent on you. It must have solid systems and processes in place to have value to a buyer.
Prospering in the downturns
If you're the top-flight operation with a strong cash position, you're at a huge advantage when the slump hits. As weaker competitors leave the market you can hire their best employees, take over their clients and buy their equipment at fire-sale prices. And like the animals that survive the toughest winters, you'll find less competition and a plentiful hunting ground as the economy improves (Darwin again).
Don't get psyched out by the media
They make their living peddling sensational disasters, real or not.
Even when genuine downturns occur, it's not the end of the world. They never last forever, and the good times will return. Great fortunes, in fact, were made in slumps as businesses with cash took over those without — often for pennies on the dollar.
Downturns are part of the deal. Meanwhile, get your house in order and be prepared ahead of time. Wait until the flood hits and you'll be getting wet.
Jayme Dill Broudy is the founder and principal of Contractor's Business School, a coaching, training and consulting firm specializing in helping contractors produce more profit in less time. Since 1993, Jayme has worked with hundreds of contractors in many specialty areas to build successful stand-alone businesses. Visit www.contractorsbusinessschool.com or call 800/527-7545 to get the free CD “10 Key Strategies to Build a Business that Works.”