Business Survival Tips for a Tight Economy

By - Jackie Rasmussen, business specialist MO SBTDC.

Times are challenging right now for many small businesses. Increased gas prices and other rising costs have caused many owners to tighten their belts to make ends meet. While there are many obvious things to do to lower expenses, the following are some more in-depth strategies you can use to keep your bottom line looking healthy.

• Review your inventory levels. It's always important to keep inventory turning. During a time of slowing sales, you need to evaluate your inventory more carefully and reduce the stocking units that are not turning well. Inventory turns are expressed in two ways -- days inventory (the number of days it takes you to sell your inventory) or inventory turns (the number of times you turn your inventory in a year). Do you know what your turn rate should be? Has been historically? Or what the industry average is?
• Review/determine your company's break-even point. Understand what level of sales is required to stay profitable.
• Analyze your customers. Take a close look at your customer segments, and make sure you understand why they purchase from you. Segmenting can be done in several ways. For instance, you can use volume of sales; type of customer, such as purchase location (retail/wholesale/internet); type of buyer (commercial/government/personal); or by buyer demographics (educated/family status/residence location).
  
  Then you can analyze your various segments to determine what product/service features are important when customers make purchase decisions, which segment provides the best margins and/or greatest volume for your business and other identifying features.
• Watch what the big boys are doing. They have big dollars to spend on marketing and monitoring the market place. For instance, consider all of the value meals that have been developed by the restaurant industry, all of which are targeted at budget-conscious consumers. Another strategy the big players in the market are utilizing is to cooperatively market. For instance, if you buy a meal at some restaurants, you get free DVDs, toys or other added values. Consider what you can do to make customers feel they are getting more for their money.
• Encourage/promote a "buy locally" strategy in your community. People do not want to travel to make their purchases, so as a local business, you may be able to capitalize on high fuel costs and the convenience you offer. Even though times are tough, now may not be the time to cut back on your advertising/marketing efforts in the local market. Remind people that buying from you saves fuel and postage costs.
• Take positive actions and maintain a positive attitude. People want to buy from a winner, so act like a winner! Do a little market research and be ready to identify and capitalize on potential opportunities. A colleague shared recently that he talked to a restaurant owner whose business has actually been increasing due to the fact that he's taking advantage of a competitor/s cutbacks; offering more customer friendly hours (opening two hours earlier by customer request); offering friendly and personalized service (reintroducing big coffee cups and small ups again by customer request); and is actively combating any negative word of mouth in the local marketplace.
• Don't be so focused on cutting costs that you forget about trying to increase sales (while keeping costs the same). Consider charging something for products or services that are currently provided at no cost. Increase prices, and try to sell more to existing customers instead of constantly prospecting for new ones.
• Look for ways to maximize the power of referral within and to your business.
• Make efforts to reduce the amount of time it takes to collect payment from customers. The most important key to getting paid on time is to be clear about the work that was done, how much should be paid and by when.
  • Add a bold due date to your invoice.
  • Call to make sure the customer got the invoice.
  • Don't wait until the payment is overdue; start collection efforts immediately.
  • Make certain all customer service efforts are addressed immediately so that they won't later be used as an excuse for withholding payment.
• Contact your Accountant to identify potential tax breaks that may have been forgotten or overlooked. Some may still provide some financial relief:
  • You may deduct up to $250,000 for purchases of major equipment, including computers, non-customized computer software, office furniture and machinery.
  • If business this year is truly bad and you are going to lose money, you may consider carrying back this loss in order to get a refund of taxes paid in prior years. A net operating loss deduction can generally be carried back to each of the two preceding tax years to offset taxable income in those years.
  • Tax law also continues to provide generous incentives for small business owners. Self-employed individuals can generally deduct 100 percent of the cost of their health insurance (up to the amount of their earned income).
• Refinance. Check into potential debt refinancing options to determine if there are lower interest rates or other options available.
• Take the opportunity to do some of the things you never seem to have time to do when business is booming. Engage in some strategic planning and/or market analysis to identify your best options for the future. Spruce up the business, or update employee manuals. Do some research on your competition. Build relationships with former and existing customers. Make good use of the time, and you'll be ready to face the future.

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