Five Tips for Retooling Your Business
An Original Article from Entrepreneur.com
As a business debt solutions provider, I’m finding that there are many entrepreneurs whose companies survived the recession, but are still struggling to make the bottom line.
They never turned to the real solution, which is management by the numbers — not by the heart or gut.
Maybe you used to give your customers 60 days to pay you, or paid a noisy creditor right away because you felt bad you couldn’t pay. But you don’t have that luxury any more.
You can no longer afford to be sentimental. Revenues are down, competition is fierce and thus profit is reduced. The business has been in a car wreck and needs some serious triage. It’s time to get smart.
Related: Four Tips for Working Out Your Business Debts
Here are some steps you can take to retool your business post-recession:
- Stop being a bank for your customers. Cash is king. That means very short-term or no term payment rules for customers. In other words, give them only a few days to pay you. You can accomplish this, too, if you’re an important supplier adding value. If you are not important or valuable to your customers, you better change that – quickly. Otherwise, you are floating a loan to your customers – be it for 30 or 60 or 75 days.
- Start collecting. If you haven’t already, make sure you have a collection strategy and an employee dedicated to manage it. I have seen collections nearly double for businesses that put in place a consistent collection process. No matter what you decide on how to collect, base your policies on the principle of clients keeping their word – even if their word ends up changing. Basically, be easier on the businesses that are up front about what they can do, versus the ones that lie to you. Have them make a payment commitment and hold them accountable for keeping their word.
- Prioritize your paying. On the other side of the equation, make sure you’re paying the most important vendor first, such as your landlord and the Internal Revenue Service, and not less important vendors that complain the most – such as a bank that’s provided a secure loan. (The bank is more likely to work with you if you don’t pay.) I often advise small-business owners to write all the checks they need to pay for the month – making a pile for each week. They should wait until Friday, then send out checks in order of importance until the cash for the week runs out. Any checks left over go into the pile for next month. This way, you always pay the highest priority first.
Related: The Six Biggest Downsizing Mistakes
- Get rid of inventory. I find that businesses often tie up way too much cash in inventory, and this is not a good practice. Sure, you might miss a potential sale occasionally because you’re out of stock of something, but that’s better than missing a rent payment because you don’t have the cash. I once remember a client who literally had tears in his eyes when he liquidated $1 million-worth of component parts for $125,000, but the move saved the company.
- Add value. Figure out meaningful ways to add value to the products or services you are providing. Adding value allows you to mark up higher and be more profitable. The name of the game is figuring out ways to be special. That included extended guaranties, customer education, intense service, knowledgeable sales people and customized delivery. Most important, define your niche and exploit it. Don’t be everything to everybody. Be profitable by adding value. Providing excellent service is an important area to look at when it comes to adding value.
- Make the Web a money-generator. Is the website wasting your money, versus generating sales for you? It’s time to really grasp the Internet, especially social networking. That means dedicating time to create an online community of customers and potential customers using Facebook, Twitter, video, blogging and on and on. Turn to Google AdWords, too, and get smart about your website analytics. Maybe you do this, or maybe you recruit a local college student to do it. But do it.
- Think outside your history. The Great Recession permanently changed the U.S. economy. If the business isn’t performing well, you need to ignore what you were and reconsider what you want to be. Experiment changing everything, and see what works. Manufacture or import, use brokers or salespeople, sell direct through the Internet or open stores, distribute or not. Find your niche, your specialty, your unique opportunity. Reinvent yourself and focus on boosting profitability, instead of gross revenues.
Also, don’t be afraid to also cut your losses if debt is too high. Do the workout and save the business. Get rid of debt and negotiate a sharp reduction of the personal guarantee with your lenders. Managing impossible debt service is a slow boat to self-destruction.
Related: 10 Rules for Surviving the Recession