Getting through tough times in business would be a lot less stressful (and much less exciting) in a more predictable world, one where the vagaries of employee productivity, weather, and manufacturing conditions, among countless other factors, had less impact.
The stark reality, though, is that there are an infinite number of variables at play in both the marketplace and the world at large that can impact your profits from one day to the next, regardless of what products or services you have on offer. That, of course, is in addition to things that are predictable, like the expenses on your ledger or the annual post-Christmas sales slump to which retailers have grown accustomed.
But there are ways to get through hard times, especially if you don’t give in to panic but instead base your decisions on facts and stick to the core ideals of your business. To that end, here are some of the common mistakes that companies make when things get tough, as well as some concrete – and motivational – solutions for enduring a down period and coming out stronger.
1. You Didn’t Downsize
Letting go of staff, especially if you have a small, tight-knit operation, is never easy. But if it’s a choice between making judicious cuts to your team and losing your business entirely, what choice do you really have? That said, there are best practices to follow even with something this difficult.
Start with a plan. Decide who you want to cut and why, as free from emotion as possible. Listen to what the employees in question have to say, even if they’re emotional or combative, and be sure they receive their final cheque and any other benefits still owed to them. If possible, announce all layoffs at one time to minimize the impact on office morale.
Finally, be sure that management shares in the pain of these cuts. Insulating top brass from these kinds of difficult changes is a sure way to engender resentment amongst your remaining staff. That might mean temporary pay cuts or at the very least a reduction or elimination of bonuses. Either way, frontline employees can’t be the only ones impacted by cuts.
2. You Didn’t Eliminate Debt
The old saw “it takes money to make money” is true, but at the same time crushing debt will handily crush your profit margins if left unchecked.
To reduce the stress of owing more money than you’re comfortable with, get together with your accountant to make up a new budget. Make sure you understand exactly how much you owe and what you’re generating before coming up with a budget for the rest of the year. Then you can figure out what you can pay down from month to month. Mortgages, leases, and even lines of credit are generally all negotiable, as intimidating as bankers and lenders may be. And negotiation is always preferable to your creditors than turning the debt over to a collections agency.
3. You Didn’t Reduce Inventory
Locking up your cash in physical goods that need to be stored can be painful, especially when those goods aren’t moving. But there are simple ways to reduce the problem, starting with a reorganization of your warehouse. Making it simple to find merchandise can reduce the chances of damaging product and reduce the time it takes to pick, pack, and ship it. And always keep your fastest-moving items up front.
If possible, avoid suppliers who require Minimum Order Quantities (MOQ). No matter how tempting it may be to get 10 free widgets with every 50 you order, ultimately those are extra widgets you’ll end up paying to store – and that may not fly off the shelves.
Finally, get rid of obsolete stock. It’s taking up space that you’re paying for and could possibly be written off come tax time. Discounting stock is one idea; bundling older products with new ones is another.
4. You Lost Your Vision
Patrick Farrar, CEO of Charlottetown, P.E.I. business incubator StartUp Zone, sees too many companies – especially new ones – get spooked by marketplace challenges. Instead of sticking with the vision that made them unique in their market to begin with, they end up copying their competitors in a bid to stem early losses, leaving them perpetually behind more-established competitors.
“A lot of companies, particularly those coming into our incubator, had that hustle, that passion and that vision that differentiates them from the market,” Farrar explains. “Then they find it a little tough at the start or they go through a down patch, so they revert to what everyone else is doing because that’s the proven model. But we try to put people back on track – ‘why are you doing this?’ and ‘what’s your differentiator?’ – and get them back to that and generally stick it through.”
5. You Failed to Communicate
When times get tough, it can get even tougher to communicate with your team. Complete transparency about your company’s financial challenges may not be the most advisable path to take, but emphasizing the good, including positive future prospects, can help motivate and encourage your team through market downturns. What is not advisable, says Farrar, is fear-based silence.
“The founder will sort of hide in a corner and feel that they’ve failed, or failed others, so they go into this downward spiral,” he says. “So I feel it’s important to keep having open communication with your team.”
6. You Didn’t See the Upside
It can be difficult to see any upside in a down period when it’s happening; it just seems counterintuitive. But healthy companies entering an economic downturn can create opportunities for themselves that otherwise don’t exist in the market. Real estate, equipment, and companies themselves can often be had for a song during times of financial instability, especially if you’ve already established large credit lines during more prosperous times. Such boldness can be rewarded when markets return to greater profitability.
Sean Plummer | Contributing Writer